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There are various challenges facing real estate investors. These include general risks such as continued economic weakness (jobs, inflation, energy), national issues (nation at war, consumer uncertainty), and the risk of natural disaster. Other risks are more specific to residential housing:
- Lack of access to mortgages due to higher credit standards.
- Lack of access to all kinds of funding due to general illiquidity and low investor confidence.
- Barriers to transaction flow, specifically the HVCC appraisal process, which is widely viewed as a frequent deal-killer for legitimate purchase offers.
- Restrictions or phase-out of government-backed stimulus programs such as the Federal Housing Tax Credit for First-Time Home Buyers and credit flow derived from TARP investments.
- Failure of local markets to recover due to regional economic factors.
Despite the gloomy news, investors should note that there is good news:
- Some markets are clearly transitioning, with shrinking inventories and rising prices
- Interest rates, when loans are available, are at or near 45 year lows
- Cap rates are rising. Investor grade properties are relatively inexpensive, inflation is expected to be low through 2010, and rents are generally rising
The challenge for investors who wish to take advantage of the growing gap between cap rates and lending rates is actually securing credit or finding equity for investments.
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