When's the Hoover Dam Going to Open?
In an interview with National Real Estate Investor, economist Hugh Kelly addresses the availability (or lack thereof) of capital and takes a guess at when it may return: There is such a volume of capital out there. I have three pictures I use in my talks, one is of Niagara Falls, one is the Sahara…
In an interview with National Real Estate Investor, economist Hugh Kelly addresses the availability (or lack thereof) of capital and takes a guess at when it may return:
There is such a volume of capital out there. I have three pictures I use in my talks, one is of Niagara Falls, one is the Sahara Desert and the third is the Hoover Dam. The argument is that for a long time we had a Niagara of capital, now people think we have a Sahara but we don’t. It’s a Hoover Dam. It’s all sitting back there. The question is when does it get released? And when it does you don’t knock the dam down, you just release the water again. That’s the 2009 scenario when you see some of this capital released into the markets in an orderly way.
We get his Hoover Dam analogy. We just hope he’s right about 2009.
Q&A Hugh Kelly [Nat’l Real Estate Investor]
“There is a difference between prices that loose lending will support and prices that responsible lending will support, and around here prices have not yet moved from the former to the latter.”
Right between the eyes. I don’t think it’s capital that rests behind that dam.
This board is basically focused on real estate, so I assume what you mean by “capital” is mortgage financing (i.e., capital that is deployed to extend mortgages, capital that is invested in mortgage-backed securities on the secondary market, and aggregators like Fannie Mae and Freddie Mac who use their capital to buy mortgages from originators). The more of this capital is being deployed the easier it is to get mortgage financing, and the easier it is to get mortgage financing, all things being equal, the higher real estate prices will be.
Don’t hold your breath. The easy mortgages that were available from in 2004-2007 period won’t be back for a very long time, if ever. There is a big difference between capital moving out of corporate lending and other non-real-estate capital uses and the mortgage market. Once markets stabilize I think corporate lending and some other non-mortgage areas will bounce back pretty quickly. Responsible mortgage lending will also come back reasonably quickly once real estate prices stabilize, but I very much doubt we will ever again see mortgage lending as loose as it was in the past few years.
In other words, capital will come back to the markets that this board cares about, but you shouldn’t expect it to come back in a way that will get real estate markets back to where they were. There is a difference between prices that loose lending will support and prices that responsible lending will support, and around here prices have not yet moved from the former to the latter.
“Somewhere over the rainbow…”
” ‘I’m very ignorant when it comes to the financial markets.’
You’re in good company around here, then.”
LOL!!! Even funnier, she probably knows more. Fancy talk = smoke and mirrors.
“I’m very ignorant when it comes to the financial markets.”
You’re in good company around here, then.
I’ll admit it, I’m very ignorant when it comes to the financial markets. Don’t understand economics, have no interest in it.
You guys speak fancy talk.
Been to the Hoover Dam though, and WOW is it impressive. It’s not too far from Vegas and that’s where you go to lose all your $.
He’s right. I will try and find the numbers later but the amount of money that now resides in money market (and bond) funds is astronomical and an historically high percentage of assets. All a flight to safety that will get released when it looks like the stock market is not falling anymore. This is why the Blackrock numbers were so good today.
Micr-evidence of this is the way apartments/houses get jumped on by buyers once price cuts take deal to right level. Office market is decidely slower, yet reality is leases expires, tenants grow and shrink, so they must take space at some point. If there is any sense market is stabilizing or turning up, many folks with jump in to make deals, much like writer describes capital markets.
I’m not so sure what gives this guy the confidence that there will be anything “orderly” about the financial markets anytime soon. 2009’s not that far off.