Commentary by James A. Crumbaugh III
RISMEDIA, June 26, 2008-Back in July of 2005 I was writing a weekly real estate column for the local newspaper. A column I wrote one particular week changed my life. In the column I had made a rather bold prediction about the real estate industry through the year 2011.
You have to remember in July of 2005 the real estate was flying high and everyone that read my column that day thought I was either insane or a total crack pot.
On that fateful day in July of 2005 I stated that I sensed a momentum change about to hit the real estate industry of epic proportions. I stated that we were about to go into a very deep down cycle that would last at least three years. At this point, it appears that I was right and it may even last a little longer, although personally I think we have reached the bottom.
Before I go into what I had predicted in that particular column, let me take a moment to tell you why that column changed my life. At the time I had a six-office franchise real estate operation with 200 Realtors. My business partner never read my columns until he read them in the newspaper. The following Monday morning after reading that particular column, he asks me to join him in his office.
He only had one question-did I believe what I had written? When I answered yes, he said then we need to make a phone call. The phone call was to a large publicly traded real estate company that had made several overtures to us, wanting to buy our company. So we sold the company at the height of the market.
So, not only did I predict that the real estate industry would be hit by the equivalent of a category-5 hurricane, but the down market would last at least three years, and in addition to the resale market being way down, new construction would become as dead as road kill.
Here it is-almost July of 2008-and we all know the condition of the real estate industry and we also all know that new construction is definitely as dead as road kill.
Now here is the second part of that bold prediction I made in July of 2005, and I suspect almost everyone will again think when they read this prediction that I’m either insane or a total crack pot.
In 2011, I predict that the real estate industry will be flying high again because it all hinges on the fact that new construction is as dead as road kill. Because there is virtually no new construction coming out of the ground, the resale inventory is going to start to disappear.
The reason I say this is because the new construction industry will be hesitant to come out of the ground with any new product until the resale inventory is down to a 3- to 4-month inventory level. Even then the new construction industry doesn’t appear overnight. They have to lay the infrastructure, get permits and then start construction.
From the time the new construction industry decides to get back in the business actively and the time it takes to bring a new product to market is usually two years. In the meantime the investors are appearing in many markets again as I’m writing this column and they are gobbling up all the fire sales, thereby reducing inventory. We won’t even discuss that the country is predicted to grow by an additional 15 million people by 2011.
I’m sure not everyone sees this the way I see it, but if I’m right the real estate industry will be flying high again in 2011. Don’t be surprised if by the beginning of 2010 you start see periodic articles in certain areas stating that prices are rising due to a shortage of inventory. By 2011 I believe we will be facing a severe inventory shortage in many communities in this country.
As I said in that column in July of 2005, all of this is based on the premise that our country’s economy is in a normal cycle.
James A. Crumbaugh III is CEO of Allison James Estates & Homes.