The sun. [volume] (New York [N.Y.]) 1833-1916, 1900-09-09
REAL ESTATE VIEWS.


Tho floating OF foreign government loans
m The American financial market this year TOT
the first time In the history Of the United Stntes
married. the latest stage In the downward prog
ress OF the interest rate on money when mas
been conspiouously apparent the past three
or four wears. Capital il being invested IN
foreign securities for the reason that the domeS-
no interest rate has fallen below the returns
that may be obtained abroad. and the oom-
petition for the British war bonds. for example,
at prices assuring an income OF 2-s per cent
was perfectly logical In view Of the crcum-
stance that United States bonds at market
rates Weld less than 3 per cent. That the de-
cline In the interest rate has exercised a mo-
mentous influence on all kinds OF permanent
investment as we'll as on productive industry
10 evident. The position and prospect OF
tho real estate market. therefore, will be er-
plicable only on condition that the effects OF
this influence be kept clearly in mind.
Tho rate Of interest, OF course. depends upon
the comparative amount Of capital offered and
/ demanded In tho way OF loans. and loans viii
be In greater or less demand according to the
condition Of general ind ustry. The recent
decline In the interest rate has taken place
In a period OF Industrial activity. This crcum-
stance Indicates tho presence Of some special
anu cACepNlOnh IhctOr optfhuuG ~ ihoie"c
the supply OF loanable capital. Loanable
capital exists nominally In the form OF money
only. The downward course Of tho interest
rate. therefore, Is accounted for by the extra
ordinary additions TO the circulating medium
during the past four years. The amount Of
money In circulation Ia to-day absolutely and
relatively TO population far greater than at
any other time In the history Of the nation,
having risen from .2i 10 per capita In 1899 TO
$3.50 In 1900. The accession TO the stock OF
money has been due principally. not to arti-
fcial legislation, but TO a notable natural more
ment In the annual production OF gold. The
production OF gold in the United states during
the four years from 1895 TO lsea inclusive. was
about 0 per cent. larger than that Of the CORE
spending period following the discovery Of the
yellow metal I'm California. a period which until
now has never been eIceiled.
Obviously. an increase in loanable capital
oooasioned by natural causes. causes which
do not breed distrust on the part OF money
lenders, and a concomitant decline In the In
terest rate act as a stimulus 20 productive
enterprise. and besides become a source Of
speculation in all kinds OF investments. The
rate OF interest determines the value OF every
article Of sale that Is bought for the income
It IL capable OF yielding. Securities COM
manu- u pIlte NHl'u VIII klNb INC mui . IhVo
OF I n interest on the purchase money. with allow
ance for differences In the risk incurred on the
principal. the Inconvenience involved In col
lecting the returns and the promptness with
which the security may be reconverted into
money. The violent speculation which cul-
minated In Wall Street last year was quite
as much the outcome OF special Developments
in the money market as OF increased earnings
on the part Of securities.
The price Of land, in common with other
fixed sources ofincome. rtSe~ as the rate Of inter-
est falls. During the past three or four years,
II ia not surprising 70 learn from appraisers.
lot quotations have been marked up generally
throughout the city, although In many local
tiles the enhancement may be explained In
part by local influences. such az the introduce
ton Of cheap power for elevators. improve
ments IN railway transportation and the demo-
lition Of tenements to make way for public
improvements. But ground rents and rents
from buildings are subject 10 opposing eco
nomic laws. While In the case Of land q fall In
the interest rate is capitalized In the fee value.
IN the case Of buildings the fall results merely
In depreciating rents by stimulating the con-
struction Of neighborine competing buildings.
these new projections causing a larger demand
for lots.
Nv iNh We HANuNNOiiI 1iVi tipiV' may 10
summed up in the statement that, other things
being equal. the fall In the interest rate has
enhanced the cost OF lots while, by encouraging
an oversupply of housing, II has deprecated
rents from buildings. But rs the cost of a
building is normally at least two-thirds more
with the building on II will have suffered a net
loss OF income, Owing 70 oyeTbuilding the re-
ing due allowance for differences In risk and
trouble OF ownership, Is in some localities less
than the act normal rate of interest on mort
Cages. but this inequality Is rapidly disappear
lns' owing 70 a years practlcal cessation OF
C. -%trIction work. In tho long run owners
OF buildings will receive the current interest
rate on the investment plus a sum covering
the risk and trouble Of ownership, the wear
and tear on the building and whatever extra
value the improvement may possess In the
ton. The real estate market Is In a condition
Of transition. The speculative effects OF a
A large proportion OF the property enhanced
by the fail IL In the hands Of professional opeT-
8tors for sale at the new scale OF prices. But
the possessors of money set apart Tor per- |
manent investment have not yet come to reoog-
nils the necessity OF accepting smaller returns.
The Considerations aWelt upon IN the fore
going point TO the conclusion that the next
development in the real estate market must be
in the nature Of an investment movement.
The comparative advantage OF real estate over
other Investments have certainly not been
lessened because Of the change in the interest
rate. Indeed. they are greater now than before
H. the proportion that possessors OF stocAs and
bonds, for example, are willing 70 recoup their
lcssened income from those securities by rein
vestment IN real estate. the ownership Of which, |
though calling for some sacrifice Of personal
leisure. commands correspondlngly greater re-
turns. To the extent also that bank deposits
have been influenced, by the falling interest
rate savings will undoubtedly be withdrawn
for investment in real estate. In short, as
the permanency OF the change in monetary
conditions and the circumscription Of specu- |
lative activity become generally recognized
capital will logically be directed inlarger volume
than ever before into real estate,
However. some real estate Investments
bring larger returns than others, Mortgage
loans on suburban realty Yield S and 81 per
cent, where city, loans yield 4 per cent, and
less. The local rate on mortgage loans,
generally speaking. determine the rental
Income from the property, which con
si-ts Of that rate plus an additional rate suf-
fcient 10 cover the difference In the risk and
other incidents involved IN the ownership. City
property oJmmards a smaller return because |
OF the greater stability OF values, ia so far as
stability is affected by public and private i'm
provements, Two years ago the interest
rate on loans equal 70 so per cent. Of the APP
praised value Of residential property was In
Manhattan generally reduced from ~ TO 4 per |
cent. while the rate or similar suburban property
..,,A,u sha YnAtrapAlt0a N Atatrt1t haa In aAnnn /