ChipSeal

REITs: Could It Be Time?

Open your eyes! Retail is being slaughtered! (TIF JN JCP SKS HD)

Mortgage equity withdrawals contributed over 3% to GDP growth in 2004 and 2005, and 2% in 2006. Without US homeowners using their homes as an ATM, the economy would have been very sluggish indeed, averaging much less than 1% for the first six years of the Bush presidency.

In 2005 there was almost $595 billion in mortgage extractions that went into some kind of consumer spending. That translated into a 3% rise in GDP. In 2007, Mortgage equity withdrawals were down to $470 billion, for a boost of 2% to GDP.

The second quarter of 2008 saw an anemic $9.5 billion. At that run rate, we could see a drop-off of over 90% from 2005! Now, think what the second quarter would have been without the federal stimulus program of $150 billion. It might have looked and felt like this quarter!

We have a consumer based economy. Consumers have run out money!

There are no more consumers in America. They are paying debt and hording cash. Their job and that of their spouse is threatened. They will not save the retailers this Christmas.

They are not traveling, so hotels are hurting, and may not be able to refinance when loan covenants are violated.

All REITs are exposed to great risk in these times. Covered malls, strip malls, warehousing, light industrial, hotel, suburban office, and resort properties will lose revenues from failing businesses. Re-financing loans will be difficult at best.

We will miss the high prices and high yields we are seeing today. They will be much lower six months from now.