The eggs were scrambled, but may as well have been sunny-side up. Dr. Mark Dotzour, Chief Economist at Texas A&M University’s Real Estate Center opened more than a few eyes Saturday morning at the NAR Commercial Caffeinated Breakfast with some bold, optimistic statements and solid one-liners in equal measure.
Sponsored by Inland Real Estate Group, REALTORS® Federal Credit Union, the Florida Association of REALTORS® and Xceligent, the Commercial Caffeinated Breakfast kicked off with Dotzour bullish on commercial real estate, bearish on gold and ready to separate the real economic recovery indicators from the fake ones.
Tax credits to buy houses or cars? Signs of a fake economic recovery, according to Dr. Dotzour. “When people buy these things because they want to,” is the true mark of recovery, which he believes we are in now. “For the first time in years, I’m more optimistic than you are,” announced the deadpan-hilarious Texan before spelling out the reasons for the bright outlook.
The housing crisis, which he characterized as a “social experiment that failed miserably” has led to the current state of five years of pent-up demand. The resistance caused by years of postponing key life events due to the economic downturn – buying, selling, retiring, has come to an end, and most importantly, “Americans have credit capacity again.”
Dotzour took a little time to scoff at commodities and promote real estate. “Commodities are hedging instruments, not investments,” he said before cautioning that anybody heavily invested in gold should be terrified of the day they read the newspaper headline “Congress balances budget”, suggesting a fit of fiscal responsibility akin to the 1981 Congress would send gold prices tumbling sharply to a multi-year stay at low levels as they did that year.
When Is Credit Coming Back To Commercial Real Estate?
Dotzour addressed the question of lenders having left commercial real estate markets high and dry by raising the structural and technical issues of loan loss guarantees. After taking care to point out there are “plenty of working, solvent banks”, he reminded that the banking system was widely insolvent, and that portfolios of bad CRE loans are still buried in the system. Toward the question of when these loans would get flushed out, Doutzur quipped “when is the RTC coming back?” This reference to the Resolution Trust Corporation, the federal government-owned corporation created to unwind the Savings and Loan crisis in the 1980s, was a way of describing the systemic need for backstop beyond what the FDIC can provide, not unlike that crisis. While no such organization appears to be in the cards, Dotzur’s apparent timeframe for this unwinding: “5-8 years”, counting from when the crisis began.
The Deleveraging At Home
A slide showing a chart with a sharp drop at the tail end was ironically Dotzur’s favorite. Its showed that household debt service payments as a percentage of disposable income had plummeted and was in the 11% range, a value not seen since the 1980. Dotzour expected this to bottom even further, suggesting the credit capacity of Americans was not only back, it is about to be in better shape than when the 1980s kicked off.
The good doctor had much more to say about the systemic challenges and opportunities coming up in 2013 and beyond. To get an audio copy of his entire presentation, click over to PlaybackNAR.