Commercial real estate could be the next catalyst for a major market correction….. (according to Bernanke).
Among the key points noted:
1. Commercial market is potentially bigger than the residential market (hence, a much larger problem here)
2. Increased vacancy, declining rents, falling prices. That almost sum up the 3 pillars of real estate. If all of them are still falling, then we have not seen the bottom yet. It is still falling. Companies are still not hiring. More restructuring are going on.
3. Which leads me to the third point. Debt ratio. Essentially, now is the worst time to go ‘long’ on property related stocks (including REITs). Lots of them are highly geared and with falling demand, prices and rents, it is extremely difficult for them to increased revenue. I am not sure how they are going to raise the funds to pay. But, I see a possible repeat of GM, or CIT.
4. At some point in time, the musical chair party will stop. And some will no longer be with us. So, do be careful out there.