A few interesting predictions came out of a panel discussion that kicked off Inman’s Real Estate Connect event in San Francisco in August. The session, moderated by Inman News founder Brad Inman, featured experts from the worlds of real estate and finance. Here were some of the most important forecasts for the real estate industry:
1. Rates will remain low for at least another year.
Amy Brandt, CEO of Vantium Capital, offered the most conservative prediction: that rates would probably start to rise significantly by the summer of next year. Bill Emmons, assistant vice president and economist of the Federal Reserve Bank of St. Louis, said he expects the Fed to do whatever it can to hold rates down until the end of 2014.
2. No matter what happens, the government will continue to play a major role in mortgage financing.
Brandt pointed out that more than 90 percent of mortgages are somehow supported today by the federal government. It will probably stay that way for a couple of reasons, the first being that investors want it that way, said Joel Singer, CEO of the California Association of REALTORS®. But another issue is that no private entity or group is big enough to fill that role right now. However, it’s unclear whether the FHA or a reconstituted Fannie Mae and Freddie Mac would take the lead.
3. Hard assets such as oil, gold, and real estate will probably be on the rise for some time to come.
All of the panelists agreed, with some minor exceptions, that real estate is a good investment right now. And like other tangible assets, it will likely grow in value over the next few years.
They also all agreed that it will take some time before the economy returns to stable, long-lasting growth. The reason? The downturn was driven by major problems in the financial sector, and the broken system will have to be retooled before the economy can truly flourish, said Patrick Stone, president and CEO of the Williston Financial Group.
That rebuilding could take some time, Singer added. “This transition is going to take a while,” he said. “The failure of institutions to grasp the problem and come up with solutions is what’s caused this to last so long.”
Emmons said the extreme aversion to risk among business right now — causing capital to flow into low-risk, low-return assets — should improve soon, but added that unprecedented levels of public and private debt could hold back growth. “There’s still a lot of debt to work through,” he explained. “In some respects, we look like Japan. Rather than take the 18 months of hell to get through that, we’re just kicking it down the road.”
However, the panel was generally optimistic about the long-term prospects of the economy.
“We train and educate the innovators of tomorrow,” Stone said. “And no country is better at connecting capital and innovation.”
Brandt also expressed confidence in the ability of most real estate professionals to adapt to any major economic shifts, just as they did with the advent of the Internet. “I think this is an innovative group that can come up with solutions,” she said, but added that practitioners should raise their awareness of and involvement in the mortgage financing part of the transaction.
“If I were running a real estate company, I would try to be more tightly integrated with the financial side,” she said.
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