Thursday, December 18, 2014

CoStar: Commercial Real Estate prices increased in October

by Bill McBride on 12/18/2014 03:27:00 PM

Here is a price index for commercial real estate that I follow. 

From CoStar: Commercial Real Estate Prices Post Steady Gains In October

CRE PRICES ROSE STEADILY IN OCTOBER, SUPPORTED BY BROAD BASE OF POSITIVE TRENDS. Most major property types continued to benefit from minimal speculative construction, a firming economic recovery and rising rental rates. Meanwhile, benchmark interest rates such as the 10-year Treasury continued to decline in October, a positive underlying trend for commercial real estate cap rates. The two broadest measures of aggregate pricing for commercial properties within the CCRSI — the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index — increased by 0.8% and 0.9%, respectively, for October 2014.
...
VALUE-WEIGHTED U.S. COMPOSITE INDEX HITS RECORD HIGH IN OCTOBER, SIGNALING STRONG DEMAND FOR LARGE, INSTITUTIONAL-GRADE PROPERTIES. After climbing 0.9% in the month of October, the value-weighted U.S. Composite Index reached a record high, thanks to steady gains in recent months. The index now stands 3.9% above its prerecession peak in 2007, reflecting strong competition among investors for large, high-end commercial properties.

EQUAL-WEIGHTED U.S. COMPOSITE INDEX MOVES WITHIN 15% OF ITS PRERECESSION HIGH. While its recovery began later, the equal-weighted U.S. Composite Index, which is influenced by smaller property sales, has made solid gains and is now back to 2005 levels, although it remains 15% below its 2007 prerecession peak. This reflects the general movement of investment capital in search of higher yields into secondary markets and property types, as pricing for commercial property has escalated in the core coastal markets.
emphasis added
Commercial Real Estate Prices Click on graph for larger image.

This graph from CoStar shows the the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index indexes.

 The value weighted index is at a record high, but the equal weighted is still 15% below the pre-recession peak.

There are indexes by sector and region too.

Commercial Real Estate Distress SalesThe second graph shows the percent of distressed "pairs".

The distressed share is down from over 35% at the peak, but still elevated.

Note: These are repeat sales indexes - like Case-Shiller for residential - but this is based on far fewer pairs.

LA area Port Traffic in November

by Bill McBride on 12/18/2014 01:03:00 PM

Note: West coast ports were impacted by a trucker strike in November, and ongoing labor negotiations (and some slowdown). The trucker strike ended after 9 days on November 22nd.

Container traffic gives us an idea about the volume of goods being exported and imported - and possibly some hints about the trade report for November since LA area ports handle about 40% of the nation's container port traffic.

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

LA Area Port TrafficClick on graph for larger image.

On a rolling 12 month basis, inbound traffic was down 0.2% compared to the rolling 12 months ending in Octrober.   Outbound traffic was down 1.4% compared to 12 months ending in October.

Inbound traffic has been increasing, and outbound traffic has been mostly moving sideways.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

LA Area Port TrafficUsually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year).

Imports were down 2% year-over-year in November, exports were down 15% year-over-year.

Exports suggest a slowdown in Asia, but import traffic was decent considering the strike and labor negotiations.

Philly Fed Manufacturing Survey declines to 24.5 in December

by Bill McBride on 12/18/2014 10:00:00 AM

From the Philly Fed: December Manufacturing Survey

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased 16 points, from a reading of 40.8 in November to 24.5 this month ... The new orders [to 19.7] and current shipments indexes also weakened significantly.
...
The current employment index fell 15 points [to 9.7] ...

The diffusion index for future activity edged down 6 points, to 51.9, in December ...
emphasis added
This was at the consensus forecast of a reading of 25.0 for December.  Note: These declines were from the extremely high readings in November - usually a reading of 24.5 would be considered robust (above zero indicates expansion).

ISM PMI Click on graph for larger image.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through December. The ISM and total Fed surveys are through November.

The average of the Empire State and Philly Fed surveys declined in December (the Empire State was negative), but this still suggests another decent ISM report for December.

Weekly Initial Unemployment Claims decreased to 289,000

by Bill McBride on 12/18/2014 08:33:00 AM

From the DOL reported:

In the week ending December 13, the advance figure for seasonally adjusted initial claims was 289,000, a decrease of 6,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 294,000 to 295,000. The 4-week moving average was 298,750, a decrease of 750 from the previous week's revised average. The previous week's average was revised up by 250 from 299,250 to 299,500.

There were no special factors impacting this week's initial claims
The previous week was revised up to 295,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 298,750.

This was lower than the consensus forecast of 295,000, and the level suggests few layoffs.

Wednesday, December 17, 2014

Comments on Fed Chair Yellen's Press Conference

by Bill McBride on 12/17/2014 07:55:00 PM

A few key takeaways:
There has been no change in FOMC policy. Replacing "considerable time" with "patient" was because we are moving further in time from the end of QE3 .  The first rate hike will be a "considerable time" from October.

• "Patient" means it is unlikely the FOMC will raise rates at the next two meetings (not impossible, but very unlikely). Here is the sentence in the statement: "Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy". Based on Dr. Yellen's comments, it sounded to me like the FOMC will remove "patient" about two meetings before the first rate hike.

• Yellen was not very concerned about the financial crisis in Russia spilling over into the U.S. She said "spillovers to the United States, both through trade and financial channels, would be small."

• Yellen thought the impact of the decline in oil prices on inflation would be transitory, and that core inflation would move towards the Fed's 2% target.

• Yellen made it clear that a policy change could happen at any meeting (not just meetings followed by a scheduled press conference). She said: “Every meeting that we have is a live meeting at which the committee could make a policy decision and we will feel free to do so. I would really like to strongly discourage the expectation that policy moves can only occur when there’s a scheduled press conference.”

• Yellen reminded everyone that monetary policy works with a lag, and that the FOMC has to forecast when a better labor market will lead to higher inflation (not yet, obviously).

• Yellen argued that it is important that the Fed stay independent. She opposes auditing the Fed's policy decisions (the Fed is already audited financially). Of course the people pushing the policy audits have been wrong about everything ... so we are lucky they are not in charge!

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 295 thousand from 294 thousand.

• At 10:00 AM, the Philly Fed manufacturing survey for December. The consensus is for a reading of 25.0, down from 40.8 last month (above zero indicates expansion).

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