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Wharton News
Professor Peter Linneman is Lead Off Speaker at the Seventh Annual McCoy Symposium on Real Estate FinancePeter Linneman, Albert Sussman Professor of Real Estate and Finance, led off the Seventh Annual McCoy Symposium on Real Estate Finance by warning of a "growth recession" in the second half of the year. Linneman said that the U.S. economy is currently in a period of asset-price deflation. The over-all economy should be free from inflation but certain sectors, including construction, will experience continued inflationary pressures. Linneman emphasized that the loss of jobs in banking, finance, accounting and law caused by lack of capital and new funding opportunities could cause a notable slowdown. Linneman also noted that one reason why public market pricing for real estate is more volatile is that debt ratios for REITs are up by 25 percent. This substantially increased leverage produces a higher-risk premium in public market pricing, making it more difficult for REITs to raise new equity and thus to grow. In the real estate debt markets, Linneman predicts that CMBS issuances will remain flat because of the "lost generation" of debt in the early 1990s.
The Financial Times quotes Professor Linneman on Public Ownership in Real EstateAn article in London's Financial Times concerning new solutions to the boom-bust cycles of the property market quoted Professor Peter Linneman as saying that despite the hiccups in the REIT market, the shift to public ownership is inexorable. Once an industry becomes public, it never goes back.
Professor Chris Mayer Advises Home Buyers in the Wall Street JournalSpring heralds the start of the home buying season but before shopping for a house, it is important to talk to a mortgage broker or banker to get some sense of what sort of loans are available, advises Associate Professor of Real Estate, Chris Mayer, in the Wall Street Journal. "The bigger the down payment, the better your chances of getting financing . . . If you get your mortgage with the bank you always do business with, you'll likely pay a high price. It's well worth spending a few hours on the phone checking rates and closing costs at a fistful of mortgage lenders." There are high costs associated with moving house including lawyers' fees, home inspection costs, loan origination fees and the commission to the selling broker. With softening real estate prices, it's critical that today's home buyers plan on keeping their homes for a decent chunk of time. "When you live in a house for a short period, you take on a lot of risk," Professor Mayer says. "There's a real chance the market could fall significantly and your down payment is wiped out."
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