When people, claiming to be economists and having missed calling the downturn, say we are nearing the “bottom” of the recession, I just smile.

 

In real estate, everything is driven by JOBS.  We now have a reported 9.4% unemployment rate. We have lost 6 million jobs and now over 14 million people are out of work.  However, if we counted the people who have become discouraged and left the job market, the rate would be over 16%.

 

I do not think it is good to take what is happening in the short term and make long-term judgments.  With the exception of a few, no one saw this coming and certainly not this bad. 

 

At the moment, we do not know the rules of the game.  We do not know how to price things and, therefore, we do not see many transactions.  Unless people absolutely need to sell, everyone will stand pat and wait.  Sam Zell said it best: "I think it was Confucius that said 'Banks don't recognize securities'."

 

Everyone will be looking to get in a position of liquidity.   At the moment, the only liquidity in the real estate market is found in REIT stocks.  People may not like the values, on either side, but it is the only place at the moment. 

 

If we examine what has happened in one of the hottest residential markets, we can see that there is very little liquidity today in property.   In West Los Angeles, one of the hottest residential markets in the country, in the last three years, the number of houses sold has dropped 80% and the prices have declined 40%.