One of the questions I hear most often (from close friends and complete strangers alike) is “how is the real estate market?”  Specifically, they usually want to know how the commercial real estate market is and how that may affect home values.  The commercial real estate (CRE) market typically lags behind the residential market.  The reasons for the lag include:  slower reaction time by larger companies vs. home buyers/sellers; longer development time for commercial properties vs. housing; many companies make decisions by reacting to the market, rather than being proactive.

In addition, secondary (or tertiary) housing markets such as Champaign County will often lag behind the national market.  The national housing market started to first feel the effects of the “bubble burst” in late 2006, whereas the local housing market did not feel it until 2007.  Colleagues of mine working in the primary markets were alerting me of the pending trouble in the CRE market as early as Q2 2007…that year was a solid year for the local CRE market.  My observation was that the local CRE market did not feel the effects of the downturn until the end of 2008.  Overall, it lagged behind the national CRE market by roughly 18 months.

The local housing and CRE markets appear to have hit rock bottom sometime in 2011 and are now showing signs of recovery.  2011 was an excellent year for local CRE whereas it was disappointing at best for the housing market.  The strongest quarter for our firm in 2011 was Q3.  So what does that mean?  Are we 12 months or so from seeing dramatic improvements in the local housing market?  My thinking is that this year will be an improvement over 2011, but due to the cyclical nature of the housing market, it is difficult to know for sure if it will be significant.  If I were to guess (and I am), I would say that 2012 will show some improvement whereas 2013 will show dramatic improvements in the housing market.

I am “cautiously optimistic” about the local CRE market.  However, the clients and companies that we deal with are also being very cautious.  That tells me that too much bad news or changes in the national market could affect our market much quicker than it did during the Great Recession.  Many companies and decision makers have learned from their mistakes and it is too soon for them to forget.  A cautious market does not bode well for development or redevelopment.  I think we will continue to see the reuse of existing buildings before we see much new development or redevelopment of existing properties.  Overall, this is a good market correction and will make the market stronger in the long run.  I hope that we continue to grow ”slow and steady” which had been the case for the local market for the past few decades prior to 2008.