From a small northwestern observatory…

Finance and economics generally focused on real estate

Mueller’s Market Cycle Monitor

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Dr. Glenn Mueller’s Market Cycle Monitor just hit my desk from the folks at Dividend Capital. To access it, or some of their other great stuff, just click here.

I’ve written about Dr. Mueller’s work before — while his model isn’t able to forecast really major moves (like the “fall off the wagon” move of 2008/2009), his Market Cycle synopsis does a great job of assessing how various property types and submarkets are moving through the normal stabilized cycle of business. In short (and I’m sure he’d do a better job of explaining this than I could), at any given point in time, a market or submarket is in one of four investment states: Recovery, Expansion, Hypersupply, and Recession. The way market participants react to one situation drives the market forward to the next situation. For example, in the recovery phase, no new properties are coming on-line. Natural expansion of the market drives up occupancy, and with it rents. The subsequent shortage of space leads to expansion. Too much expansion leads to hyper-supply, in which too much property is competing for too-few tenants. This leads to recession. (In a very macro sense, that’s more-or-less what happened in 08/09, with the added problem that too many banks were trying to loan too much money and thus not properly pricing risk.)

The nuances of his model and report are too numerous to synopsize here. In short, he finds that on a national basis, every property type (e.g. — apartments, industrial, suburban offices) are in various stages of recovery, with the health facilities and senior housing being the closest to breaking out to expansion. Intriguingly, both limited-service and full-service hotels are following in close order.

He also tracks most of the top geographic markets in the country, and all of these are either deep in recession or in the earliest stages of recovery. No markets are close to break-out into expansion. The worst two markets (and “worst” is just relative here) are Honolulu and Sacramento, while the best (again, relative) are Austin, Charlotte, Dallas-Fort Worth, Nashville, Richmond, Riverside, Salt Lake, and San Jose. My home city of Seattle is ranked — along with a dozen others — deep in the heart of recession.

Written by johnkilpatrick

March 8, 2011 at 1:44 pm

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