Headlines throughout the financial press about subprime and the sluggish US real estate market have persisted into the summer months. Fire, brimstone, declining residential real estate prices, credit crunches, gnashing of teeth…all these things clearly portend an end to the world as we know it and inevitable descent into Hades, right? Ecclesiastical headlines aside, buried on page B4 of the Wall Street Journal today are two very interesting tidbits of real estate information.
Commercial Investment Reaches Record
By Ryan Chittum, The Wall Street Journal (*site requires registration)
Construction Index Hits High Mark in June
By the Editorial Staff, The Wall Street Journal (*site requires registration)
Investors seem to have contracted a case of amnesia when it comes to commercial real estate. No, we swear these stories aren't from 2004. This is today's news. Or, we suppose, semi-news since many outlets have chosen not to even mention these stories.
We remind MarketMinder readers as often as we can (but still folks tend to forget) that commercial comprises nearly half of the total real estate market in the US. It's big and important, yet most people remain fixated on residential. Those who suffer from such tunnel vision are missing out on a big, sustained boom.
According to the study, global investment activity in commercial real estate surged to $382 billion in the first half of 2007, up 16% from $328 billion a year ago. What's more, by far the biggest beneficiary of commercial real estate investment was the US, where investment surged to $163 billion, a 37% gain.
Those are big, beautiful, bullish numbers. And they're mere afterthoughts of today's news. How sad. What we did see on today's front page business headlines was this:
U.S. Building Permits Decline to Decade Low; Consumer Price Gains Moderate
By Joe Richter, Bloomberg
Not included in the headline is the fact that US housing starts actually increased 2.3%.
Today's perception of real estate woes is a classic example of not seeing the whole picture. If you're really worried about real estate's effect on the economy, then you just can't count out commercial real estate—its big gains are making big contributions to GDP growth and offsetting a lot of the recent softness in residential markets.
Commercial real estate amnesia is bad for your investing health. Recall the big picture and you'll see this is a thriving economy, and a great time to own stocks.