Back in 2008, the downturn took a many of us by surprise. Even I, who was a doomsday believer from the start, sitting behind a stats screen (I worked in market research, specializing in the new home sales) watching $100k houses be sold for $250k I knew it wouldn’t last…but I never knew it would be this bad.
Since then, I’ve been on the edge of my seat waiting for 2015. But why? It’s simple. People want to invest but banks high tightened their purse strings. With more stringent requirements made on investors it’s been difficult for them to get the loans to purchase commercial real estate investments. But that’s going to change. It’s been 7 years since most people have foreclosed and/or filed for bankruptcy. That means, over the next two years, we’ll have quite a few people re-enter the commercial real estate investment market that have previously been left out. With newly cleaned credit reports, I believe we’ll see an uptick in sales, leases and number of investors.
Foreclosures will be forgiven. In 2008 approximately 2.3 million properties were foreclosed (source). In 2009 approximately 2.82 million properties were foreclosed (source). Since foreclosures stay on your credit report for 7 years, all these filings will be forgiven over the next two years. That’s over 5 million foreclosures that will be cleared from credit reports over 2015 to 2016.
Bankruptcies will be forgiven. In 2008 there were 1.1 million bankruptcies filed (source) and in 2009 there were 1.4 million bankruptcies filed (source). While people with Chapter 7 bankruptcies will still have another 4 years in the credit dog-house, Chapter 13 bankruptcies will be cleared from credit reports. That’s approximately 780,000 people with newly cleared credit over the time period of 2015 to 2016.
The wealth effect. Investors feel more comfortable and secure about their wealth, causing them to spend more (source). When credit reports are clean, more financial doors are open to consumers. Meaning more people are likely to enter the commercial real estate investment market.
But these factors are more likely to affect the residential market, why would they be important to us commercial real estate folks? Commercial real estate generally moves in tandem with the residential properties, since both are affected by many of the same factors such as interest rates and share the “wealth effect”. Agents in the hardest hit markets like Nevada, Arizona, California, and Florida will likely see the most benefit from these newly cleaned credit reports, but I believe the commercial real estate industry as a whole will benefit by the impending wealth effect.
That’s just my opinion on the subject. What do you think?