2500 of my best friends and I spent three days at the MBA’s annual CREF meeting in San Diego last week. By now, it’s old news, but, indeed, the mood was very upbeat. Just like the days of yore, everyone spent every working moment in lender-mortgage banker meet and greets, exchanging braggadocio over pipelines, products and relationships. People even had the energy to return to old fights and grudges: portfolio lenders vs Wall Street squaring off after sharing a fox hole these past three years. Most heartwarming.
Also not news: there remains substantial anxiety. Is there sufficient loan demand? The girls have decided to have a dance, have hired the hall, put up the bunting and blown up the balloons, the band is tuning up. No guys. Or not enough. What happens, that little voice natters on, if we re-built this sell-side edifice, put expensive rumps in seats, and the buy-side don’t come to the dance? That’s simply not acceptable. To a man with a hammer, everything looks like a nail. A rebuilt, robust sell side will lend or die trying. And what might that do to heretofore heartfelt pledges of discipline?
On fundamentals, the consensus was pretty positive.
- We should see good GDP growth for the next several quarters, in the 3% range.
- Interest rates are still benign and, even if the long end of the curve creeps up 100-200 bps, risk spreads will come in, keeping coupons at acceptable levels. LIBOR will also be benign.
- Employment will remain anemic but grow.
- Housing will continue to “grow more affordable” (nice way of saying prices continue to decline) at a slower rate and slowly but surely the shadow inventory will be absorbed.
- There’s been precious little new stock built in any of the major real estate food groups in years.
- There is a modest but a growing sustainable demand for mortgage credit. Plenty of refis to do.
That’s all basically good.
On the other hand, there does seem to be too much retail, too much multifamily, and Corporate America really doesn’t even need the space it has. And, on employment, there’s precious little evidence of real growth yet. (Is the new normal 8% structural unemployment? If so, what’s that going to do to us?) QE3 is on the runway, deficits continue to balloon, the consumer is still overburdened with debt, housing is doing a double dip, 30% of homeowners are under water on their biggest investment. Oops, there I go, going negative again. Don’t worry, it will somehow all work out.
And maybe that’s the headline both for CREFC and CREF. Somehow, it will all work out. After three wrenching years of retrenchment and loss, growth simply must be back. Somehow it will all work out! I kinda think so too.
By: Rick Jones.