by Calculated Risk on 1/18/2011 12:44:00 PM

I am attending the NMHC Apartment Strategies Conference in Palm Springs today.

The first session asked: Is the recovery real for apartments? I'll have more later, but just a few quick notes ...

The overwhelming sense from participants is "YES" the apartment recovery is real. One data point - There are a record number of attendees this year.

The expectations are for a record low supply completed this year (as Tom Lawler and I have noted before). Some pickup in completions next year (2012), and then plenty of completions in 2013. The starts will probably pickup later this year, although I'll know more at a later session. The pickup in starts will help both GDP and employment growth this year.

The expectations are for strong rent growth over the next two years (around 5% per year) for large upper tier apartments. This will keep the vacancy rate from falling too much as owners trade off rent increases for occupancy.

Apartment market has bifurcated. Upper half of apartments are improving, regardless of geography. Lower half are struggling.

In 2010 most new households selected renting as opposed to owning. The feeling is this will continue for at least a couple more years.

I'll have more later ...

by Calculated Risk on 1/18/2011 10:00:00 AM

The National Association of Home Builders (NAHB) reports the housing market index (HMI) was unchanged at 16 in January. The consensus was for a reading of 17. Confidence remains very low ... any number under 50 indicates that more builders view sales conditions as poor than good.

Note: I'm attending the NMHC apartment conference in Palm Springs today - I'll post the graph tonight. Here is the graph from last month (Nothing has changed!)

Press release from the NAHB: Builder Confidence Remains Unchanged In January

Builder confidence in the market for newly built, single-family homes held unchanged at a relatively low level of 16 for a third consecutive month in January, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.
...
"The HMI and its subcomponent indexes are holding steady following a below-expectations finish in 2010," noted NAHB Chief Economist David Crowe. "At this point, housing remains on the sidelines of a weak economic recovery as consumers and builders wait for clear and consistent indications that jobs and economic output are reviving."
...
While the HMI components gauging current sales conditions and sales expectations for the next six months both held steady from the previous month, at 16 and 25, respectively, the component gauging traffic of prospective buyers edged up a single point to 12 in January.

HMI scores rose by one point in the Midwest and four points in the West in January, to 14 and 15, respectively. Meanwhile, HMI scores fell two points in the Northeast and one point in the South, to 20 and 17, respectively.

by Calculated Risk on 1/18/2011 08:30:00 AM

From the NY Fed: Empire State Manufacturing Survey

he Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved in January. The general business conditions index rose 2 points to 11.9. The new orders index moved up 10 points to 12.4, and the shipments index surged 18 points to 25.4. After a sharp decline last month, the inventories index rose above zero. Employment indexes also climbed into positive territory.

This was below expectations for an increase to 14.0.

by Calculated Risk on 1/17/2011 08:27:00 PM

Tomorrow I will be attending the NMHC Apartment Strategies Conference in Palm Springs.

A few of the sessions:
• Is the recovery real for apartments?
• To build or not to build: That is the question.
• Reality Check: Have valuations really firmed or are we in bubble 2.0?

I'll report on what I hear ... (I'll be posting during the day)

by Calculated Risk on 1/17/2011 03:45:00 PM

From the Irish Times: EU ministers seek rescue fund boost

Euro zone finance ministers called today for an increase in the effective lending capacity of the union's rescue fund, but Germany said there was no urgency and it would be March before a firm plan was in place.
...
"There will not be results today, the market developments in the last week have, thank God, taken any urgency out of these discussions," [German finance minister Wolfgang Schaeuble] told reporters.

The expectation is the European Financial Stability Facility (EFSF) will eventually be increased from €440 billion to €700 billion. The European financial crisis is far from over ...

Weekend:
• Summary for Week ending January 15th
• Schedule for Week of January 16th

by Calculated Risk on 1/17/2011 11:49:00 AM

A weekly update on hotels from HotelNewsNow.com: STR: US weekly results for week ending 8 Jan.

In year-over-year comparisons, occupancy increased 5.7 percent to 42.8 percent, average daily rate was up 2.0 percent to US$93.43, and revenue per available room finished the week up 7.8 percent to US$40.00.

The following graph shows the four week moving average of the occupancy rate as a percent of the median occupancy rate from 2000 through 2007.

Click on graph for larger image in graph gallery.

Note: I've changed this graph. Since this is the percent of the median from 2000 to 2007, the percent can be greater than 100%.

The down spike in 2001 was due to 9/11. The up spike in late 2005 was hurricane related (Katrina and Rita). The dashed line is the current level.

This shows how deep the slump was in 2009 compared to the period following the 2001 recession. This also shows hotels are recovering, but the occupancy rates are still below normal.

RevPAR is up compared to the same week last year, but still down from 2009.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 1/17/2011 09:03:00 AM

Writing in the NY Times, Monica Davey reviews the budget situation in several states: Budget Worries Push Governors to Same Mind-Set

In years past, new governors have introduced themselves in inaugural remarks filled with cheery, soaring hopes; plans for expansions to education, health care and social services; and the outlines of new, ambitious local projects.

But an examination of more than two dozen opening addresses of incoming governors in recent days shows that such upbeat visions were often eclipsed by worries about jobs, money and budget gaps.
...
While state revenues — shrunken as a result of the recession — are finally starting to improve somewhat, federal stimulus money that had propped up state budgets is vanishing and costs are rising, all of which has left state leaders bracing for what is next. For now, states have budget gaps of $26 billion, by some estimates, and foresee shortfalls of at least $82 billion as they look to next year’s budgets.

This is a key issue this year - these budget cuts and tax hikes will be a drag on growth and employment ...

Weekend:
• Summary for Week ending January 15th
• Schedule for Week of January 16th

by Calculated Risk on 1/16/2011 08:22:00 PM

Here is an article on housing in Spain (in Spanish): Aquí vivo solo (ht Jim)

Google translate page:

There is only life in a corner with nothing around, rather than highways, roads, farmland, a corner living Paula and Pavel and another 1,200 people. Un 4% de lo previsto. 4% of schedule. Hay muchas formas de vivir solo. There are many ways to live alone. Esta es una de ellas. This is one of them. La urbanización fue proyectada para 30.000, más de un tercio de la población de Guadalajara capital. The complex was designed for 30,000 ...

Check out the photos and captions too! The one guy has a golf course to himself ... at least the grass is green.

Earlier:
• Summary for Week ending January 15th
• Schedule for Week of January 16th

by Calculated Risk on 1/16/2011 02:22:00 PM

Some interesting comments on the trifurcation of the commercial real estate market ...

From CoStar: CoStar Commercial Repeat-Sale Indices

• CoStar’s three national commercial real estate repeat sales indices were down for the month of November despite notable price increases for high profile core transactions in Washington D.C. and New York City

• The Investment Grade index was down 4.1% for the month giving back some, but not all of the 8.1% net gains observed over August, September and October. Notwithstanding November’s decline, the Investment Grade index is still up 7.6% since its cyclical low earlier this year.

Negative national trends contrast with the strong and increasing interest in trophy properties within core markets where prices have continued to climb during 2010. Collectively they show a market that is not just bifurcated but possibly trifurcated, with trophy assets commanding bidding wars, smaller assets languishing, particularly in secondary and tertiary markets; and distressed properties trickling onto the market as banks recycle assets at a relatively measured pace.
emphasis added

Click on graph for larger image in new window.

This graph from CoStar shows the indexes for investment grade, general commercial and a composite index. All three indexes declined in November.

It is important to remember that there are very few CRE transactions (compared to residential), and that there is a high percentage of distressed sales, so prices are very volatile.

Earlier:
• Summary for Week ending January 15th
• Schedule for Week of January 16th

by Calculated Risk on 1/16/2011 08:24:00 AM

Note: here is the economic Schedule for Week of January 16th.

Below is a summary of the previous week, mostly in graphs.

• Retail Sales increased 0.6% in December

On a monthly basis, retail sales increased 0.6% from November to December(seasonally adjusted, after revisions), and sales were up 7.9% from December 2009.

Click on graphs for larger image in graph gallery.

This graph shows retail sales since 1992. This is monthly retail sales, seasonally adjusted (total and ex-gasoline). Retail sales are up 13.5% from the bottom, and now 0.2% above the pre-recession peak.

This was below expectations for a 0.8% increase. Retail sales ex-autos were up 0.5%; also below expectations of a 0.7% increase. Although slightly lower than expected, retail sales are now above the pre-recession peak in November 2007.

• Industrial Production, Capacity Utilization increased in December

From the Fed: Industrial production and Capacity Utilization

Industrial production increased 0.8 percent in December after having risen 0.3 percent in November. ... The capacity utilization rate for total industry rose to 76.0 percent, a rate 4.6 percentage points below its average from 1972 to 2009.

This graph shows Capacity Utilization. This series is up 11.5% from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 76.0% is still far below normal - and well below the pre-recession levels of 81.2% in November 2007.

This was above consensus expectations of a 0.5% increase in Industrial Production, and an increase to 75.6% for Capacity Utilization.

• Trade Deficit declined slightly in November

The trade deficit in November was $38.3 billion, down slightly from $38.4 billion in October This graph shows the monthly U.S. exports and imports in dollars through November 2010.

Imports have been mostly flat since May, and exports have started increasing again after the mid-year slowdown.

The petroleum deficit increased in November as import prices continued to rise - averaging $76.81 per barrel in November. Prices will be even higher in December. The deficit with China increased to $25.634 billion from $25,517 in October. Once again oil and China deficits are essentially the entire trade deficit (or even more).

• CoreLogic: House Prices declined 1.6% in November

CoreLogic reported that house prices declined again in November. This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index is down 5.07% over the last year, and off 30.9% from the peak.

The index is only 1.2% above the post-bubble low set in March 2009, and I expect to see a new post-bubble low for this index - possibly as early as next month or maybe in early 2011.

• Ceridian-UCLA: Diesel Fuel index increased in December

Ceridian-UCLA reported "The Ceridian-UCLA Pulse of Commerce Index™ (PCI), a real-time measure of the flow of goods to U.S. factories, retailers and consumers, surged 2.4 percent in December and pushed the PCI above its previous 2010 peak established in May."

This graph shows the index since January 1999.

• NFIB: Small Business Optimism index declined slightly in December

This graph shows the small business optimism index since 1986. The index decreased slightly to 92.6 in December from 93.2 in November.

According to the NFIB: "This marks the 36th month of Index readings in the recession level".

The decline this month was small, and in general this index has been improving - but very slowly.

• Other Economic Stories ...
• From the Financial Times: Lisbon succeeds with debt auction
• From the NY Times: Portugal Bond Sale Succeeds Despite Budget Woes
• From the WSJ: Strong Demand at European Debt Auctions
• From the Association of American Railroads: AAR: Rail Traffic increased in December
• Fed's Beige Book: "Economic activity continued to expand moderately"
• From RealtyTrac: Record Foreclosure activity in 2010
• Unofficial Problem Bank list increases to 933 Institutions

Best wishes to all!