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May 22, 2001

Real Estate Crumbling

We warned you last month about the dangers building in the real estate sector. Now there's even more evidence that the slowing economy has caused the real estate bubble to spring a leak. In the wake of last year's tech wreck, companies went belly-up and vacated numerous commercial real estate properties. And just-completed buildings are standing empty without much prospect for occupation.

As we've said before, this problem is regional right now -- most prevalent in the technology centers of San Francisco and Los Angeles -- but it will soon spread throughout the country. Despite the stock market's recent rally, the fundamentals of the economy are still weak, and the fundamentals of the real estate sector are even weaker. Companies are laying off employees in droves -- they are not looking for new office space! And the coming bust in residential real estate could be even worse. Laid off workers won't be in a hurry to build or buy new homes.. In fact, they'll be lucky if they're able to make payments on their existing mortgages in light of the average American's minimal amount of savings!

The real estate sector is showing cracks in its foundation, and it won't be long before it gets demolished.

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