Norton on Real Estate: In 2008, let’s hope the optimists are right

I usually look forward to the holiday, anticipating a less hectic pace. (This is often helped by snow days!) However, in the commercial real estate sector there is always a rush to close certain transactions before year’s end. This results in buyers and sellers rushing around, jumping through hoops, making extraordinary demands on their consultants to make the impossible happen.

While technology has sped up many aspects of real estate transactions, e-mail has in fact slowed down others. An attorney and I were castigated for proposing a face-to-face meeting to resolve four outstanding issues. Five days later, two dozen e-mails, but no progress on any of the five. And conference calls … don’t get me started. When more than a half-dozen participants are involved, what really gets done?

Enough venting on the hyperpace of 21st century transactions and technology’s failure to live up to its potential due to human foibles and personalities.

The past year ended as a good year, but not a great one. The exception might be if you are residential mortgage lender or a homeowner who did a low-doc/no-doc super jumbo variable rate mortgage. There is no question that the media (print, TV, cable, etc.) has hyped this “housing bubble” and “subprime meltdown” to death. How much is real? That remains to be seen. Are we in, or heading into, recession? As economist Jeff Thredgold said in his weekly online newsletter, “What is ironic in this battle of wills regarding whether the economy is or is not in recession is the fact that we honestly won’t know until it is likely over!”

This, of course, presumes the proverbial soft landing with a quick bounce-back. This has been the pattern over the past 10 to 12 years, but will it be the same this time?

This is a rhetorical question because I do not know the answer. In my daily travels, I sense and hear more angst. The manufacturing sector is either booming or limping along. Rising energy costs have an impact on all of us. Regionally, New England is bumping along, but it is less robust than the rest of the nation.

I was in San Francisco a month ago and saw the economic momentum partially driven by 400,000 new in-migrants (presumably the legal ones) into California each year while New England is shedding 300,000 to 400,000 each year. The drag from housing is more acute in Miami, Houston and Phoenix. Nationally, we have been building 2 million housing units annually for the past two to three years while the historical absorption has been 1.3 million, so there is a surplus of 1.5 million to 2 million units that needs to be absorbed. However, there are significant regional variances. A recent transfer from Florida told me that six of the 40 homes in his Florida subdivision are for sale (gulp!).

This brings us back to the quick-bounce theory. Housing has been a key economic driver for the past 10 years. U.S. household net worth was $57 trillion in June, but 40 percent of that was the value of our homes. A 2 percent drop in housing values is nearly $500 million.

The average American home rose in value 46.9 percent between September 2002 and September 2007. Florida — up 85.9 percent. Arizona — up 85.2 percent. Nevada — up 84.2 percent. California — up 80 percent. These four states account for more than half of the national rise in foreclosures of the past year.

So New England is not so bad off, right? Well, if the subprime crises continue to ripple through the capital markets, if financial firms continue to post large write-downs, if financial stocks continue to pull down the stock market, then the significant reduction of liquidity will hold a recovery in check.

Will this happen? Nobody really knows, but stay tuned. We are going to find out in 2008. Continued market turmoil is a real risk to the overall economy. The United States is no longer the sole engine pulling the global economy. Brazil, Russia, India and China — collectively referred to as BRIC — can they keep things humming globally? Again, we are about to find out.

As we head into 2008, let’s hope the optimistic guys are right.

Bill Norton, president of Norton Asset Management, is a Counselor of Real Estate (CRE) and a Fellow of the Royal Institution of Chartered Surveyors (FRICS). He can be reached at