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Raub Report – U.S. Real Estate Cycle

April 3, 2013

When driving you are focusing on the windshield and road ahead, occasionally glancing  in the rear view mirror and side mirrors to be sure that what is going on behind and to your side is not going to disturb you.  Real estate is a lot like that — the past is our window to the future, and what is going on around us right now will have a major impact in the years ahead.  So best you know what the traffic is doing with which you are about to merge.

That said, here is a quote from Bill Gross, Managing Director of PIMCO and the manager of the world’s largest bond fund.  Mr. Gross is one of the savviest guys in financial markets, and he says “Investors should position for eventual inflation as the “end stage of a supernova credit explosion” is likely to produce more inflation … Transition from financial to real assets if possible at the margin.” Gross continued, “Buy something you can sink your teeth into – gold, other commodities, anything that can’t be reproduced as fast as credit.”

I think commercial real estate falls into the “sink your teeth into” category of hard assets.  By definition you cannot create real estate quickly.  Plus, it will appreciate above the rate of inflation.

Then, in a newsletter I receive from an outstanding strategic planning company, known as RCLCO, there is an exceptionally interesting chart of the real estate cycle.

First note, the cycle is not smooth; the down phase is much shorter and sharper than the up phase.  I can attest to the truth of that observation.  Declines happen much more quickly than the recovery phase of an expansion.

Secondly, note the timeline they have put in.  Their chart puts the U.S. in Early Recovery Phase, the best time to acquire and reposition properties.  The phase for the next two years advises us to stabilize and then develop new property, and this phase will last through 2016 before we have another downturn.   Contrast this with the obviously slow recovery the national economy is experiencing and the cautious but very real expansion we are experiencing in San Antonio, Central and South Texas.  I submit that these factors place us in the prime location to acquire income property for a five to ten year hold, producing solidly increasing income streams and building value along the way. While Multi-family construction is expanding,, let’s wait on retail and office construction.

Link to RCLCO

Article Link: Trends Driving the Demand…