Property guru says U.S. market nearing peak

[HenryTo]

No doubt, the information economy and the outsourcing of manufacturing is making the American economy less cyclical - but while the professionals are relatively disciplined relative to historical norms, the same can't be said for speculators in the residential markets:
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Property guru says U.S. market nearing peak
Wed Jun 29, 2005 02:27 PM ET

NEW YORK (Reuters) - The biggest real estate investment boom in U.S. history may be approaching its peak, a leading authority on the market said on Wednesday.
Yields on commercial property, known as cap rates, fall as prices rise in the same way that bonds move. The rates have been tumbling and prices have set record highs for some sectors as a wave of investment capital has moved from stocks and bonds into real estate.

"I've noticed in the last couple of months, the ascent of cap rates has started to slow," Peter Korpacz, the head of real estate business advisory services for PriceWaterhouseCoopers, told reporters at the Reuters Real Estate Summit.

"In certain markets, and apartments is one of them, a lot more property is being put onto the market," he said. "I get the feeling that while cap rates are still coming down, we're kind of getting close to the bottom."

Over the past year, cap rates in the prime office investment market have fallen around 100 basis points to average between 5 to 6 percent, which generates returns of about 7 percent, Korpacz said. This compares with about 4 percent for benchmark 10-year U.S. Treasury bonds.

"I think we've reached an elongated peak in pricing and eventually it will be an economic event that will take it down," Korpacz said at the summit at Reuters U.S. headquarters in New York.

Korpacz said he expected the market to remain stable for the next six to 12 months. During this period, occupancy levels and rents should continue to improve shielding real estate returns from any rise in interest rates.

But the real estate cycle will turn down again if the economy slows and U.S. jobs growth stalls.

"The thing the industry is focusing on now is jobs growth. For the most part its running at about 175,000 a month. It's a healthy economy, but it's not robust. During this point in the last recovery (in the early 1990s) jobs were growing at about 217,000 a month."

Korpacz said real estate lenders and developers are far more disciplined now than in the past and so there was little threat to the market from speculative development, although the red-hot residential sector was giving rise to concerns among investors.

He added that if there is a major drop in prices for condos or single-family housing, it could hurt "real estate as a whole and just wash (away) the whole industry."

[HenryTo]

I've read a couple of his books - before I found out that he wasn't who he was supposed to be. That being said, I liked his points and reasoning although they are not for everyone. I have not read anything of the real estate stuff or investing stuff, though.

Henry

[Dubious]

If you go to the "Rich Dad, Poor Dad" dude's website he is saying the same thing and to buy gold.