Real Estate Guru's are Cautiously Optimistic for 2011

Both industry executives and U.S. and Canadian economists were "cautiously optimistic" in their predictions for 2011 at the Real Estate Forum held Nov. 30-Dec. 2, 2010 at the Metro Toronto Convention Center.  Industry pundits like Dori Segal of First Capital Realty Inc. and Andrea Stephen of Cadillac Fairview predicted that current low cap rates will continue to compress below 6%, notwithstanding that the industrial commercial vacancy rates and rental rates are not glowing.  In fact, the forecast is for  cap rates to continue to compress to, or below the extremely low 2007 levels.  Andrea Stephens pointed out the recent successful sale of a relatively empty office building in New York City, with 50 offers and a winning bid that exceeded 30% of Cadillac Fairview's own bid. 

David Hale from David Hale Global Economics in the U.S. is predicting continued extremely slow growth in jobs and economic recovery in the U.S.  Of the 8M jobs that were lost in this recession, a little over 1M jobs had been recovered.  Over 2.1M jobs were lost in the construction industry alone.  Average sales before the recession of new homes in the U.S. were in the 1.7M range and is now currently at 600,000.  He also indicated that over 860 banks have been rated on the danger list in the U.S. 

Avery Shenfeld of CIBC World Markets Inc. predicted no more than a 2% increase in growth next year in the U.S..  He also forecast a very high Canadian dollar because of the tremendous influx of capital in "safe investments" in Canadian equities, real estate and debt which is still viewed as one of the safe havens in the world. 

He did forecast a potential 10% drop or correction in real estate prices in Canada as infrastructure spending ends in March 2011 and fiscal tightening takes effect.  He also indicated that consumer spending and housing starts were slowing.  An interest rate increase of ¾ of a point to a full point in the second half of 2011 was in the cards and going up a full 2% in 2012. 

So where does that leave us in 2011 based on industry experts and economists?  Canada remains the one bright light in the world for economic growth and fiscal/financial safety.  However, 75% of those exports go to the U.S. and a third of European countries in the economic union are on the verge of bankruptcy.  We are not out of the woods yet.

My suggestion:  Keep some cash in the bank.  There may be bargains yet in both the stock and real estate markets.