What brings this up? I spend a lot of time biking and jogging around town. Driving, too.
In the last few months, I’ve noticed something – a massive proliferation in “For rent/For lease” signage around town. Office complexes. Medical condos. Retail shopping centers. Everywhere. On one recent 14-mile ride, I literally spotted that kind of signage in front of all but one or two commercial real estate complexes on my route.
Some might dismiss this as anecdotal, or just a localized issue. But not me.
For one reason, I haven’t seen anything like this here in my South Florida back yard since 2005-2006 when we had the last major turn in the real estate cycle. That time, the locus of the future crisis was residential rather than commercial property. Housing developments were sprouting five, ten, fifteen, or more “For sale,” “For sale by owner”, and “Open house” signs like weeds every weekend.Is He
For another reason, these on-the-ground observations fit with what the data is showing all around the country. Multiple regional and national reports show investment in office property dropping from year-ago levels … apartment-market conditions loosening to levels we haven’t seen in the last several years … and property values starting to fall for the first time since 2010.
|Multiple regional and national reports show investment in office property is dropping.|
Residential does have issues, mind you. We learned today that new home sales dropped for the third consecutive month in March, falling 1.5% to a seasonally adjusted annual rate of 511,000. That missed economist forecasts. The median sales price also fell a few thousand dollars from March 2015.
But with apartment supply ballooning at a record rate … regulators warning of reckless commercial real estate lending practices … and increasing signs of the cycle “topping out,” now isn’t the time to be buying into the bubble on the commercial side of the business. It’s the time to start cashing out.
I’ll have a heck of a lot more on this topic in the coming days and weeks – as well as suggestions for how you can profit. So stay tuned.
In the meantime, let me know what you’re seeing in your own neighborhoods. Are “For rent” signs sprouting up at commercial properties around you? Or do things look normal? If you’re in the business, what are you seeing on the ground? What is the likelihood we’re at another important turning point for real estate?
What about the auto industry? Is it in a lot of trouble … or is growth on cruise control there? And what does it mean for the markets? You shared some views on those topics in the last couple of days.
Reader Jorge R. said: “My son is an agent for a brick-and-mortar auto insurance company. He is stating that business has slowed down drastically since last summer here in South Texas. Customers have been canceling insurance policies left and right, and not adding any more cars.
“He says that auto dealers have been complaining about slow business. One dealer had only one sale for the whole month as of yesterday (April 21, 2016) in this city of 60,000. Auto dealers are getting so desperate they are regularly coming into my son’s office to try to drum up business.”
Reader Ed added: “I’ve read other analysts who state the auto industry is in big trouble. I, myself, am in the market for a new car. My present car is 11 years old. But I’m going to hold off buying until I see whether or not the ‘bubble’ bursts. If it does as many think it will, then I should be able to pick up a very decent car at a very decent price.”
Reader Steve shared this take on the auto sector CEO that prompted my Friday column: “Having worked in the auto industry, I agree with Mike Jackson. The industry has always been highly cyclical. Just look at the fluctuation in a chart of annual sales over time and which has risen to a peak. That’s why Chrysler has needed bailouts several times and why GM went bankrupt.
“I recall an industry meeting where Jackson was luncheon speaker and he was not afraid to tell the audience of manufacturers what he was really seeing at the dealer/customer level. The banks have their financial games and the auto manufacturers have their own version of marketing and financing games to manipulate sales ‘results’.”
When it comes to how policy might react to an auto downturn, Reader Jim said: “The Fed funds rate will continue to support the market, as well as the actions of the other major central banks. Foreign funds are pouring into the U.S. With all the promises being made by the candidates, the fourth year of the Presidential cycle is also firmly in place.
“We may get a short-term pullback. The big-time short covering in the energy sector needs to correct. But after that, it’s off to the races through the end of the year.”
However, Reader Chuck123 was more skeptical that policy can prop things up: “On monetary policy, there’s an old saying: You can fool some of the people all of the time, or all of the people some of the time, but you can’t fool all of people all of time. So I think this monetary foolery will end, but I don’t know when.”
Thanks for sharing your views. I believe policy has pretty much reached the end of the line when it comes to having any impact on the underlying economy. Periodic asset price spikes can’t be ruled out, and indeed, we’ve just seen another one. But the longer-term direction for the markets and economy seems pretty clear to me, given the multiple bubbles that are simultaneously popping right now (autos, IPOs, M&A, buybacks, commercial real estate, and on and on).
Incidentally, there are a lot of things I’m doing to get my important warnings and recommendations into the hands of investors like you. One upcoming event that I’m attending is the MoneyShow Las Vegas that’s running from May 9-12, 2016 at Caesars Palace.
With over 160 hours of educational classes, engaging panel discussions, and an exhibit hall offering industry-leading companies, live trading and software demos, and unsurpassed networking opportunities, The MoneyShow Las Vegas will help you learn how to invest and trade to win. I have two presentations planned, and would love it if you could attend. Click here or call 800-970-4355 to register today (please mention priority code 040948).
More luxury towers, with more rentals are flooding the real estate market in several U.S. cities – but nowhere is the extravagance as over the top as in New York City. Bloomberg offers this tour of the “American Copper Buildings” at 626 First Avenue in Manhattan.
They won’t be completed until 2017. But when they are, the twin buildings (40 and 49 floors) will feature a three-story skybridge linking them. The bridge will have a lap pool, allowing residents to swim from end to end 300 feet above the ground. Unfortunately for the developers, as I noted earlier, the real estate market is likely on the brink of another downturn – with the massively oversupplied apartment sector particularly vulnerable.
China has reverted to a dangerous, failed formula to boost growth artificially – massive, new debt-funded stimulus, according to the Financial Times. A record 6.2 trillion yuan surge in borrowing in the first quarter – up 50% from a year earlier – helped goose GDP. But it also drove China’s debt-to-GDP ratio up to 237%, the highest level in the nation’s history and up from around 148% in 2007 at the last market peak.
Donald Trump’s two leading opponents, Ted Cruz and John Kasich, are trying a last-ditch strategy to deny him the nomination. They’re going to basically “split up” a handful of states – with each ceding a select number of races to the other.
Is that collusion a sign of desperation, or a savvy political move? Let me know your thoughts. I’m also interested in hearing your view on the outlook for commercial real estate, China’s economy, and the other topics I’ve covered here. The discussion section below is where you can weigh in.
Until next time,
P.S. Did you miss my URGENT report? If you care at all about preserving your wealth in the coming crash — and then multiplying it many times over — click this link to read my invaluable report NOW!