Maybe I’m overly alarmist, but it seems to me that this article essentially says that Rochester’s real estate market is quite stable, so it’s a great time to invest heavily in Rochester. That sounds nice, and with the housing bubble collapsing other places, there’s a lot of capital floating around that needs a home. The question is: are we inviting the sort of heedless investment that made other markets so unstable?
I mentioned the capital floating around the market in a previous post last night, so let me expand on that a moment. We don’t think of free capital much right now because of all the bank problems and the credit freeze up. The story in the media has largely been about the lack of credit, which is to say that the story is about a lack of available loans and mortgages, which sounds like a lack of money.
And the banks are definitely hurting financially, so that is partially correct. But many people who were investing in real estate before the problems began did so because they’re wealthy and need places to put money where it will be safe. At a certain level, investing money in real estate, bonds, or whatever is the same as putting it in the bank. Historically, real estate tends to be a safe bet and less prone to wild fluctuations than some other investments.
So now that markets in California and elsewhere have dried up, there’s capital that needs to be invested somewhere. People could put it in bonds, they could put it in gold, but they’ve got to put it somewhere. And with all the banks closing right now, pinning one’s investment capital to property which will always have at least some value probably seems like a smart choice to some. Investing in Upstate New York markets, where we’ve managed to escape the brunt of the Subprime damage and where property values have not significantly changed over the last few years.
Once you get the investors, you get the short-sellers and the hedge funders and it’s all down hill from there. Investment becomes highly speculative and unstable. Once the market has outgrown it’s actual potential – which wouldn’t be long in Rochester – the market dries up and the investors go elsewhere.
I don’t suspect that we’re going to see any wide-spread damage done, necessarily, and there’s not going to be a second housing boom in Rochester. But I do worry that some local towns and villages may find that the investment that’s plentiful today maybe gone tomorrow, with a project half-started. That should probably sound familiar to those of us living in Rochester.