Ric Edelman: The Problem With the Real Estate Market

Why the ripple effect on residential real estate may hit your neighborhood.

Reviewed by: Lisa Barr
Edited by: Lisa Barr

Ric Edelman: It's Friday, August 18. We've been talking in past months about the problem with real estate in major cities across the country.

There's a 20% vacancy rate, and that's before sublets are considered. Thousands of buildings have mortgages that were obtained when interest rates were near zero. A lot of those buildings now have to be refinanced over the next couple of years.

And with interest rates now at 5%, the monthly payments are going to skyrocket at the very moment tenants are not paying rent. Double whammy. We're already seeing defaults. This is going to increase.

The residential sector homeowners don't want to sell because they refinanced back when rates were 2% or 3%. But if they buy a new house today, they'll have to pay a new mortgage rate of 5% or 6%. So they're sitting on their houses, not moving.

Low Inventory for Real Estate 

That means less inventory for people who want to buy homes. It's also causing the prices of new home construction to rise. And between those prices and higher interest rates, buyers are being priced out of the market. That's hurting the real estate market. And that's the biggest driver of our economy.

And now there's a new report that says it's not just commercial retail and residential real estate that's in trouble. Government real estate's in trouble, too. The GAO, the Government Accountability Office, says many large government buildings are being significantly underused. GAO examined 24 agencies that occupy most of the federal government's buildings in Washington, D.C.

We're talking 21 million square feet of office space. And 17 of the 24 agencies are at just 25% of their real estate capacity. We're talking the EPA, Department of Justice, Department of Labor, State Department. On average, these two dozen agencies are only collectively using about 45% of their headquarters capacity.

The government is spending $2 billion a year maintaining the buildings they own. They're spending another $5 billion a year on rent at other buildings. But most of that space is empty. GAO found, for example, at the Small Business Administration, that even if every employee showed up at the office, at the same time, the building would only be two-thirds occupied. GAO says that's a conservative estimate.

So you can forget about the government adding to its office space needs. That means they're out of the market. They're not going to be a buyer of real estate anytime soon. That's going to put more pressure on the real estate marketplace nationally. And yeah, the worse it is for real estate, the worse it is for the economy. 

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Ric Edelman, founder, Digital Assets Council of Financial Professionals, is one of the most influential people in the financial planning and investment management profession, according to Investment Advisor, RIABiz and InvestmentNews. He was ranked three times as the nation’s No. 1 Independent financial advisor by Barron’s, is in two industry Halls of Fame and received the IARFC’s Lifetime Achievement Award. Edelman also holds two patents for financial product innovation. He is the industry’s top financial educator. Edelman is a #1 New York Times bestselling author of 12 books on personal finance, including his newest, The Truth About Crypto, an Amazon bestseller. He hosts The Truth About Your Future podcast and produces Public Television specials. Edelman taught personal finance at Georgetown University for nine years and is Distinguished Lecturer at Rowan University. He and his wife Jean live in Northern Virginia.