Commentary by George W. Mantor
RISMEDIA, Oct. 27, 2008-I still believe that the mainstream media continues to distort the facts about real estate either by over simplifying the facts, selectively presenting the facts, or ignoring the facts altogether. The headlines scream of falling prices and rising foreclosures without ever benchmarking what is being compared.
When the first significant wave of foreclosures was coming to market, the news was reported as a several hundred percent increase without noting that, for several years, there were virtually no foreclosures. Why?
Rapidly rising prices provided a cushion against the normal baseline of failure that occurs in people’s lives. People still got fired, divorced, arrested, overspent, gambled, and did other things that once might have resulted in foreclosure.
But then, when selling prices began to level off, the cushion was gone and all of those people, plus recent failures, were all defaulting at the same time. Coupled with mortgage resets and fraud, this was bound to spike.
Just as there is a baseline of failure in peoples’ lives, however, there is also a baseline of need to transfer real estate. The predictable events in peoples’ lives continue without regard to the economy and they drive demand. Over time, that demand will absorb today’s oversupply. Builders, many of whom are all but inactive, will be well behind.
But, the industry’s response has been so tepid and self-serving that it almost amplifies the doom and gloom. Let’s hear it for the future of real estate, let’s review the facts:
We are a growing and shifting population. According to the Brookings Institution and Virginia Tech urban planning professor Robert Lang, in just over 20 years, we will need to develop enough commercial, industrial, retail and residential real estate to accommodate another 70 million people, in just ten regions called Megapolitans.
Due to increases in the cost of transportation, concrete, lumber, copper, and labor, it will cost more to develop, and those prices will be born by the consumer.
Will Roger’s was right. He was inaccurately quoted as saying “Buy land, they ain’t making any more.” What he really said was in response to a reporters question about investment advice. Rogers said, “What little capital I have, I have invested in coastal properties as I reckon they ain’t making any more.”
The good stuff is already gone. In San Diego, big builders are leaving and they will never return. There are no significant tracks of land remaining that could be developed with an economy of scale that would allow a builder to make a profit.
Real estate can be leveraged. Despite the meltdown in the mortgage industry, leverage is one of the principals of building wealth.
Real estate has utility. At a certain point, that utility protects the real properties underlying value.
Foreign investors believe that U.S. property is well-priced and represents long term stability in a rapidly changing world.
The largest real estate investors continue to pay a premium to acquire the best properties. The Irvine Company and T. Boone Pickens come to mind.
Real estate ownership can be benefited by a host of tax advantages.
Generation Y is coming.
The future of real estate is as it has always been. The delivery process is uneven, the availability of capital is ever fluctuating, and the cycles are unpredictable. But, it is a diminishing resource on a finite planet. The population is growing and shifting, and the cost of everything is rising. The future is clear.
George W. Mantor is known as “The Real Estate Professor” for his wealth building formula, Lx2+(U²)xTFP=$? and consumer education efforts. During a career that has spanned more than three decades, he has amassed experience in new home and resale residential real estate, resort marketing, and commercial and investment property. He is currently the founder and president of The Associates Financial Group, a real estate consulting firm.
Prior to launching his own firm in 1992, he had been Director of Training and Customer Service for Great Western Real Estate. In addition, he has served on virtually every real estate committee, including a term as a Director of the California Association of REALTORS. He is the creator of the Personal Best System, a business and life planning process, and the Red Zone Time Planning System for Business Professionals.
Mantor can be reached at GWMantor@aol.com.