MFE: When will the recovery begin? What will it look like?
SC: The economic downturn will probably last through the first half of 2009. [However], we most likely will not experience a quick or strong recovery. The housing and credit bubbles this time are much bigger than in the early 1990s. The financial losses are more substantial as well. People need to rebuild their confidence, which has been shattered.
MFE: How will the downturn affect the apartment market?
SC: I think that the current downturn is having a mixed impact on the apartment market. While the weak economy will continue to put pressure on apartment fundamentals in the near-term, the sector nonetheless remains positioned to benefit from several factors. More stringent lending standards are presently rendering fewer qualified home buyers. [And] the free-fall of housing prices has encouraged many prospective home buyers to “wait and see,” yielding more demand for rental accommodations.
MFE: What is the No. 1 thing that apartment owners should be concerned about in 2009?
SC: Asset pricing. In the third quarter of 2008, the average apartment deal cap rate in primary markets was about 6 percent. As appraisers make comparable pricing adjustments over the next several quarters, apartment valuations could fall substantially.