It’s a not a real estate bust, it’s a residential real estate bust

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After my brief dalliance with the prophets of financial Armageddon, I have returned to the world of yeah, but. As in, yeah the residential real estate market is in a world of pain, but commercial real estate isn’t in any kind of trouble at all.

The reason is that commercial real estate had its meltdown in 2000 and 2001, as the dot-coms and related enterprises that drove demand for office space in the late 1990s suddenly began to go poof. So now we’re in the relatively early up stages of what is usually a 15- or 16-year cycle. At least, that’s what Glenn Mueller, University of Denver professor and real estate investment strategist for Dividend Capital Group, told me this morning, and I have no reason not to believe him.

This is part of a broader story about the 2001 recession and what stands ahead of us now. Corporate America went through one of its worst downturns ever in the early years of this decade. Consumers, meanwhile, used the availability of incredibly easy credit to keep on spending as if nothing had happened. Now the signs are many that American consumers are due for some kind of retrenchment. But corporations are doing grrrreat, with profits higher than ever.

The two sectors aren’t disconnected: If consumers stop spending, corporations will feel the pain. But they’ll be in far better shape to withstand it than if they too were at the tail end of a long boom cycle. This tendency for different parts of the U.S. economy to boom and bust at different times has been apparent since the late 1980s. And while it may have bred a certain complacency among investors that will eventually be punished, that doesn’t make it any less of a real and healthy phenomenon. In real estate, for example, it means that some of the construction workers losing their jobs in the housing bust will be able to move over to commercial projects. And in general, it means that while the U.S. economy will probably face some tough times over the next year, it’s not all headwinds ahead.

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