The Long, Winding Road Back to “Normal”

It’s the longest, slowest, recovery since the Great Depression, particularly for commercial real estate. And the main question for observers is defining exactly when it has recovered. Given the depth of the late 2000s recession and the factors impacting it, there should be no surprise that it’s taking a while to get back to “normal.”

“This recession was a balance-sheet recession. It was a crash on an asset class—housing,” says Michelle Meyer, senior economist of Bank of America/Merrill Lynch in New York City. The result, she says, hurt consumers and banks, and because of securitization, was even more widespread and spiraled out of control. “I’m not sure we’ll ever get back to what was normal before the crisis. The economy has undergone a severe collapse.”

The market, as a result, has become bifurcated, says Dan Fasulo, managing director of research at Real Capital Analytics in New York City, with some segments and markets bouncing back and others lagging. Multifamily, for example, is doing well, even in some of the hardest-hit geographic areas.

“In Phoenix, institutional investors are buying class A apartments,” Fasulo notes. “There’s growth in Phoenix and Miami. There’s still a significant number of people moving to the Sunbelt every year, and nothing has been built in these markets since 2007. The supply side will tighten up.” After all, people have to live somewhere.

“The demand for apartment properties stayed positive through most of this period,” says George Ratiu, an economist with the National Association of Realtors in Washington, DC.

The main question affecting other sectors is job security—or, says one observer, the ability to get another job, which would allow workers to move. “If people are under water, they’re not moving,” says Joel Naroff, president and founder of Naroff Economic Advisors in Holland, PA. “This is a five-to-10-year trend before we get housing to a decent level.”

To read more, visit the February/March 2011 issue of Real Estate Forum online.