Each year for the last decade or more, professionals within Ernst & Young's Real Estate practice have gathered informally to review the trends and issues impacting real estate over the last twelve months and to discuss how new trends might affect the development, financing, ownership, operation and even re-use of real estate in your area.

We began last year optimistically. Interest rates were relatively low, capital was plentiful, transaction activity was strong and market fundamentals sound. Much of the optimism was due to the continued stellar performance of the housing sector which was s strong point of the national, and even global, economy.

Things can change quickly in a few months. As of writing this, the full impact of the subprime mortgage crisis is still to be felt in the United States. We have already witnessed a huge flow of capital from foreign investors into financial institutions hit hardest by the mortgage crisis. More funding is on the way. We have seen real estate transaction activity - especially investment sales and commercial mortgage-backed securities (CMBS) financing - dry up, giving pause to the overall real estate market. We have also seen a swift revision of deal terms and underwriting which, in the commercial mortgage sector has resulted in fewer loans being written and, in the investment sales sector, has led to significant attempts (and some success) by buyers to re-price pending deals. Lower interest rates, which are widely anticipated in 2008 to combat a US economic recession, may go some way to offset these trends, but we must at least be prepared for several more months of higher terms throughout the market.

While most other countries around the world seem to have managed the crisis quite well, we believe the broader crisis in the US mortgage industry will have further impact on real estate as a whole. Add to this the threat of inflation and recession of uncertain depth and duration and 2008 does not appear to hold the promise of being a great year for those in the real estate industry.

So, this year we begin the year in a more pessimistic frame of mind. However, as we saw last year, events can change the industry almost overnight so it is vital that those in real estate and those observing the industry keep a close eye on trends that may change its course.

BY DALE REISS
GLOBAL AND AMERICAS DIRECTOR OF REAL ESTATE -
ERNST AND YOUNG

Real Estate Vocabulary Builder:
Earnest Money Deposit :
A deposit made by the potential home buyer to show that he or she is serious about buying the house.


If you would like to suggest a topic for comment in one of our future emailers, please let me know. You can always reach me at rory@coakleyrealty.com or by phone 240-696-6634. I look forward to hearing from you!

Rory S. Coakley
Coakley Realty, Inc.
20 Courthouse Square - Suite 106
Rockville, MD 20850
www.coakleyrealty.com