My law firm clients are asking me what I expect. They know that I represent a variety of real estate developers active in the area around Branson and Table Rock Lake, where the pace of sales of single-family homes and condo units seemed to slow in early 2008 then nearly stop altogther by mid-2008. My name has shown up in newspapers and public records in relation to my representation of creditors of several large, distressed projects.
When my clients ask me about the future, my first reactions are how would I know and am I really being asked if my other clients are hurting, too? Many of them are hurting, badly.
Here are my ideas about the prospects for 2009:
• There’s a huge inventory of lots in all price ranges, many of them in subdivisions with incomplete streets and utilities. Construction lien litigation is snowballing. It will be several months before lenders really know the full extent of the damage to their customers and to the lenders themselves.
• Several months will be required for new patterns to be established under the changed conditions of supply and demand for real estate products and constricted lending. There seem to be many fewer active mortgage brokers and real estate agents. Lenders say they have money to loan, but few borrowers meet more stringent underwriting guidelines.
• Marketing of real estate to investors, especially investors in residential real estate, has changed. Fannie Mae and Freddie Mac stopped buying or insuring loans in developments with nightly rentals early in 2008. Income forecasts for residential rentals have not been borne out by experience in many cases. Many investors have been wiped out by problems in their home markets, as well as having been burned in the Ozarks.
• Retirees and second-home buyers will come in smaller numbers and with less money. The drop in the stock market (and the value of family-owned and other closely-held businesses) and in home values elsewhere has wiped out a large chunk of the money that was used by cash purchasers for homes, furnishings, boats, and recreation. Some will be forced to delay retirement for several years.
• Local governments, hospitals and school systems are instituting hiring freezes and layoffs.
• Local retailers of national chains are going out of business, regardless of the performance of local outlets, which has been mixed.
• I haven’t referred as many business clients to bankruptcy attorneys since the late 1980s. Almost every day, I spend an hour or two with callers (many of them not existing clients) facing dire financial circumstances.
Those lenders, developers, builders and purchasers who are still standing in six months will have tremendous opportunities. Lenders and developers will need to carefully sort out and resolve a host of issues with development rights; permits for constructing and operating water and sewer systems; planning and zoning authorizations; and rights of existing homeowners and homeowners’ associations.