photo credit: {Guerrilla Futures | Jason Tester}

Everyone knows about the meltdown in the housing market the last few years.  The bubble burst.  A lot of people lost their homes.  It was the big story for months.  But a far bigger crisis is looming, and  it’s getting much less coverage in the media.  The commercial real estate market is in the beginning of a similar crash the housing market experienced.  To see an in-depth story on the state of the commercial real estate crisis click HERE.

I was talking to a banker this week and he gave me his perspective on this problem.  Commercial loans are usually “balloon loans” intended to come due and then roll over  every 5 years or so.  This process works as long as values are going up.  But just like homeowners, a lot of commercial properties are underwater on their loan to value.  The banks have to maintain a good loan to value ratio so they either can’t renew these loans or they require the owners to kick in a bunch more money to keep the ratios in line.  Some owners are walking away.  The resulting foreclosures further depress values perpetuating the downward spiral.

This crash is expected to last until sometime in 2013. The banks who have lost money because of the  residential  meltdown are going to continue to face losses in this one.  What this will likely mean for residential real estate is that the money supply will tighten up as banks are required to keep back more in reserve.  So financing and money supply will remain a significant factor in residential real estate.  For real estate agents who are willing to work hard to find creative solutions to problems, this market offers great opportunities.

For years, the cost of building materials in US have been impacted by China’s economic growth.  Now they’re doing real economic stimulus–pumping in $585 billion in the next 2 years.  And their projects are truly “shovel ready”.  China will boost its steel production by 10% to 12%.  This means that existing orders for steel and concrete will expand.  By 2020 China’s high-speed rail system will have consumed about 117 million tons of concrete.

So how does infrastructure growth  in China affect you and me here in the center of the US?

Market analysts predict that we will see a housing shortage in as little as 2 years.  They are calling it the Echo Boom.  With an increase in demand for starter homes, new construction will likely get some new life.  This is a good thing.

But with China continuing to suck up raw materials we will likely see increasing costs for new construction.  I think that these trends will be good for existing home sales and the overall health of the real estate market.

Real estate investor, David Lindahl says, “It’s always a good time to buy real estate.”  But you have to know your strategy for it to become a good buy.  If the forcasts are correct, now is a good time to pick up a house at bargain prices and reap good appreciation in coming years.