Mark Dotzour At NAR Commercial Caffeinated Breakfast

Picture of NAR's Jan Hope and Texas A&M Dr. Mark Dotzour

NAR Commercial Division VP Jan Hope Welcomes Dr. Mark Dotzour

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.

 

11. November 2012 by Wayne Grohl
Categories: commercial lending, Credit, Economic recovery, NAR 2012 Annual Convention | Tags: , , , , , | 7 comments

Comments (7)

  1. I think it is hard to call the housing crisis “a social experiment that failed miserably”, when the adverse impact was multiplied by the presence of derivatives. While there are still a lot of bad CRE loans buried in the portfolios of struggling banks, it is fair to say that half of it has been digested already. One only needs to look at the low cap rates of multifamily as an example.

  2. While this is very good news for the industry I feel we must wait for the General Congress to put out the new budget. Purse strings are still being held closely yet we do see some gradual movement. I am not a commercial agent and do not intend on going that course but you must agree that residental has close ties with commercial

  3. The commercial Real Estate market is in need of some good news. Too many empty buildings out. There should be programs put in place to put these buildings to good use to benefit the communities.

  4. Dr. Dotzour is by far the smartest guy in the room and a fantastic speaker. However, I disagree that real estate happy days are here again. The current pick up in the real estate market I believe has more to do with unsustainably (artificially) low interest rates than additional debt capacity from borrowers that have deleveraged.

    We are in the process of creating the same debt bubble via low rates that got us here in the first place. In my opinion, it will take interest rates finding their appropriate risk relative level for us to see the corresponding correct pricing in commercial and residential RE.

  5. I am attending a breakfast meeting this morning where Dr. Dotzour is the featured speaker. I will be anxious to hear how this year’s outlook differs from the past two years (which were pretty duanting). Our firm has had a record year and is poised to do even better next year. Bring us some good news Dr. D!

  6. In Philadelphia, we are experiencing a boom in the redevelopment of residential areas in and around center city. However, in a city where the availability of undeveloped land is pretty much non-existent, there are many vacant commercial and industrial buildings. The municipality hopes to attract businesses to these buildings to redevelop them. This situation is not unique to Philadelphia. Perhaps a stronger collaboration between the municipalities and the NAR could solve this problem.

  7. Dr. Dotzour continues to be my favorite speaker – one I get to see once or twice a year. Our market (small, North-Central Minnesota) has seen the effects of 5 years of pent up commercial demand with major players all building in 2012 – i.e. Costco, Olive Garden, Discount Tire, Big Lots and Dunham Sports. While I believe in the pent up housing demand, we’re not seeing it, yet. Hopefully, 2013 will start to show a kickstart to new home construction.

Leave a Reply

Required fields are marked *