RSS Feed by Calculated Risk on 8/07/2010 11:41:00 AM
Saturday, August 07, 2010
NMHC Quarterly Survey: Apartment Market Conditions Tighten
From the National Multi Housing Council (NMHC): Widespread Improvement Continues for Apartment Industry, According to NMHC Quarterly Survey of Market Conditions
The Market Tightness Index, which measures changes in occupancy rates and/or rents, rose from 81 to 83. Fully 69 percent of respondents said markets were tighter (meaning lower vacancies and/or higher rents). This was the sixth straight quarter in which this measure has risen, and is the highest figure since July 2006.
...
“Demand for apartment residences has substantially increased thanks to modest improvements in the jobs market and the continuing decline in homeownership rates. ... Going forward, the near-term outlook for the apartment industry is likely to be tied to the pace of job growth,” [said NMHC Chief Economist Mark Obrinsky]
Click on graph for larger image in new window.
This graph shows the quarterly Apartment Tightness Index.
The index has increased for six straight quarters, but only has indicated tighter market conditions for the last two quarters (from very weak conditions).
A reading above 50 suggests the vacancy rate is falling. Based on limited historical data, I think this index will lead reported apartment rents by about 6 months to 1 year.
Also this data is a survey of large apartment owners only. The data released in late July from the Census Bureau showed the rental vacancy rate was steady in Q2 for all rental units in all areas.
A final note: The results of this survey are a little surprising, but it does suggest the rental market might have bottomed - at least for now. I've heard from a couple of sources that effective rents have risen slightly over the first half of 2010 at some large apartment complexes. Just something to be aware of ... (I've posted about this before).
CoStar: Commercial Real Estate Prices decline sharply in June
by Calculated Risk on 8/07/2010 08:30:00 AM
This is a new repeat sales index for commercial real estate. Previously I've only been using the Moodys/REAL Commercial Property Price Index (CPPI) for commercial real estate.
From CoStar: CoStar Commercial Repeat-Sales Indices, July 2010
The commercial real estate market’s pricing has been a tale of two worlds with the largest metro markets attracting significant institutional capital and forcing prices upward over the first two quarters of 2010, while the broader market has continued to soften. This divergence of the two worlds may soon change as we are now witnessing a pause and softening even within the investment or institutional grade primary markets. Over the past ten months we have seen the overall CCRSI oscillate from positive to negative and back again, with preliminary July figures very likely to be down for the investment grade property markets. From May to June, the overall CCRSI was down 7.78% with the investment grade property declining by 4.83%, reversing previous positive movement.
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. The investment grade index had been increasing - but turned sharply lower in June.
On the number of transactions:
The CCRSI July report is based on data through the end of June. In June, 665 sales pairs were recorded, up significantly from May, during which 506 transactions occurred. Overall, there has been an upward trend in pair volume going back to 2009. February 2009 appears to have been the low point in the downturn in terms of pair volume, when 374 transactions were recorded.Just another index to follow!
...
Distress is also a factor in the mix of properties being traded. Since 2007, the ratio of distressed sales to overall sales has gone from around 1% to above 23% currently. Hospitality properties are seeing the highest ratio, with 35% of all sales occurring being distressed. Multifamily properties are seeing the next highest level of distress at 28%, followed by office properties at 21%, retail properties at 18%, and industrial properties at 17%.
Friday, August 06, 2010
California to stop accepting First-Time Homebuyer Tax Credit Applications on Aug 15th
by Calculated Risk on 8/06/2010 09:20:00 PM
Earlier employment posts today (with many graphs):
From the California Franchise Tax Board today: Last Chance to Apply for State’s First-Time Buyer Tax Credit
The Franchise Tax Board (FTB) announced today that it will stop accepting applications for the First-Time Buyer Credit at midnight Sunday, August 15, 2010.Here are tables with the number of applications received so far.
As of August 4, FTB has received 31,460 applications. Because some of the applications are invalid or duplicates, FTB will continue to accept them through August 15, to ensure that enough valid applications are received to properly allocate the full $100 million of tax credit. FTB estimates that it can award approximately 17,500-20,000 credit certificates to unique and valid applicants. However, once the funds are exhausted, any remaining applications will be denied.
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California homebuyers still have time to qualify for the state’s other $100 million home tax credit for the purchase of a new home. The New Home Credit is available for taxpayers who purchase (close escrow) a new home on or after May 1, 2010, and before August 1, 2011, as long as they enter into an enforceable contract executed before January 1, 2011. The seller must certify that the home has never been previously occupied.
It appears that the first time homebuyer tax credit allocation was exhausted over a month ago, and it is very unlikely that anyone applying today will receive a credit. The new homebuyer credit is still available, but probably for not much longer.
Bank Failure #109: Ravenswood Bank, Chicago, Illinois
by Calculated Risk on 8/06/2010 07:05:00 PM
Earlier employment posts today (with many graphs):
Quoth the Raven, nevermore!
One can only hope.
by Soylent Green is People
From the FDIC: Northbrook Bank and Trust Company, Northbrook, Illinois, Assumes All of the Deposits of Ravenswood Bank, Chicago, Illinois
As of June 30, 2010, Ravenswood Bank had approximately $264.6 million in total assets and $269.5 million in total deposits.
...
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $68.1 million. ... Ravenswood Bank is the 109th FDIC-insured institution to fail in the nation this year, and the thirteenth in Illinois. The last FDIC-insured institution closed in the state was Arcola Homestead Savings Bank, Arcola, on June 4, 2010.
Employment Report: Temporary Help and Diffusion Index
by Calculated Risk on 8/06/2010 04:09:00 PM
This post is a little more technical ...
Earlier employment posts today (with many graphs):
Temporary Help
From the BLS report:
The number of jobs in temporary help services showed little movement (-6,000) over the month.The following graph was used early this year as the basis for several optimistic employment forecasts (I disagreed).
Click on graph for larger image in new window.This graph is a little complicated. The red line is the three month average change in temporary help services (left axis). This is shifted four months into the future.
The blue line (right axis) is the three month average change in total employment (excluding temporary help services).
Unfortunately the data on temporary help services only goes back to 1990, but it does appear that temporary help leads employment by about four months.
The thinking was that before companies hire permanent employees following a recession, employers first increase the hours worked of current employees and also hire temporary employees. After the number of temporary workers increased sharply late last year, some people thought this might be signaling the beginning of a strong employment recovery.
I was skeptical and joked that "We're all temporary now!" As this graph shows, the hoped for surge in overall hiring didn't happen. There are a number of reasons why employment growth is sluggish following the credit bust - mostly related to excess capacity in many sectors, and the excess supply of houses (usually new residential investment is one of the key sectors for employment at the beginning of a recovery).
This will be my last post with this graph.
Note: the temporary hiring for the Census is excluded from this graph.
Diffusion Index
The BLS diffusion index for total private employment was steady at 55.6 in July. For manufacturing, the diffusion index is at 50.0; down from 53.0 in June, and down sharply from 65.9 in May.Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS. From the BLS:
Figures are the percent of industries with employment increasing plus one-half of the industries with unchanged employment, where 50 percent indicates an equal balance between industries with increasing and decreasing employment.The increase in the diffusion index earlier this year was one of the clear positives in the monthly employment reports. The decrease in the diffusion index over the last few months (falling to 50% for manufacturing in July), is disappointing.
Consumer Credit Declines in June
by Calculated Risk on 8/06/2010 03:05:00 PM
The Federal Reserve reports:
Consumer credit decreased at an annual rate of 3-1/4 percent in the second quarter. Revolving credit decreased at an annual rate of 9-1/2 percent, and nonrevolving credit was about unchanged. In June, consumer credit decreased at an annual rate of 3/4 percent, revolving credit decreased at an annual rate of 6-1/2 percent, and nonrevolving credit increased at an annual rate of 2-1/2 percent..
Click on graph for larger image in new window.This graph shows the increase in consumer credit since 1978. The amounts are nominal (not inflation adjusted).
Revolving credit (credit card debt) is off 15.3% from the peak. Non-revolving debt (auto, furniture, and other loans) is off 1.0% from the peak. Note: Consumer credit does not include real estate debt.
FHA Refinance of Borrowers in Negative Equity Positions
by Calculated Risk on 8/06/2010 01:23:00 PM
This is the introduction of the program originally announced back in March.
From the FHA: FHA Launches Short Refi Opportunity for Underwater Homeowners
In an effort to help responsible homeowners who owe more on their mortgage than the value of their property, the U.S. Department of Housing and Urban Development today provided details on the adjustment to its refinance program which was announced earlier this year that will enable lenders to provide additional refinancing options to homeowners who owe more than their home is worth. Starting September 7, 2010, the Federal Housing Administration (FHA) will offer certain 'underwater' non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least ten percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA-insured mortgage.The FHA insured first is less than current appraised value, and the FHA is not involved in any principal reduction (that is the responsibility of the lender).
The FHA Short Refinance option is targeted to help people who owe more on their mortgage than their home is worth - or 'underwater' - because their local markets saw large declines in home values.
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Today, FHA published a mortgagee letter to provide guidance to lenders on how to implement this new enhancement. Participation in FHA's refinance program is voluntary and requires the consent of all lien holders. To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth and be current on their existing mortgage. The homeowner must qualify for the new loan under standard FHA underwriting requirements and have a credit score equal to or greater than 500. The property must be the homeowner's primary residence. And the borrower's existing first lien holder must agree to write off at least 10% of their unpaid principal balance, bringing that borrower's combined loan-to-value ratio to no greater than 115%.
In addition, the existing loan to be refinanced must not be an FHA-insured loan, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent.
Note: this has nothing to do with that nonsense rumor yesterday about a government principal reduction program. This was previously announced in March.
Employment Report: Why the different payroll numbers?
by Calculated Risk on 8/06/2010 12:00:00 PM
Technical Update: A few readers have asked if I'm mixing SA and NSA data. Usually that is not appropriate, but I checked with the BLS, and in this special situation it is correct. I even submitted it as a question when the BLS had their first live chat back in March:
9:34 Michele Walker (BLS-CES) -___________________________________________________
Submitted via email from Bill: Hi. The headline payroll number is seasonally adjusted, and the hiring for the 2010 Census is NSA. How would you suggest adjusting for the 2010 Census hiring to determine the underlying trend (not counting the snow storms!)?
Thanks for your question Bill.
There is an adjustment made for the 2010 Census. Before seasonally adjusting the estimates, BLS makes a special modification so that the Census workers do not influence the calculation of the seasonal factors. Specifically, BLS subtracts the Census workers from the not-seasonally adjusted estimates before running seasonal adjustment using X-12. After the estimates have been seasonally adjusted, BLS adds the Census workers to the seasonally adjusted totals. Therefore, to determine the underlying trend of the total nonfarm (TNF) employment estimates (minus the Census workers), simply subtract the Census employment from the seasonally adjusted TNF estimate.
Original Post:
Once again there is some confusion about which payroll number to report.
Basically the media is confusing people. I explained this last month: Employment Report: Which payroll number to use?
The headline payroll number for July was minus 131,000.
The number of temporary decennial Census jobs lost was 143,000.
To be consistent with previous employment reports (and remove the decennial Census), the headline number should be reported as 12,000 ex-Census. That is consistent with non-Census reports.
Instead most media reports have been using the private hiring number of 71,000 apparently because of the complicated math (subtracting -143,000 from -131,000). Private hiring is important too, but leaves out changes in government payroll and is not consistent.
I've posted all the numbers, but I've led with the headline number ex-Census - and that is especially important now since state and local governments are under pressure.
Note: early this year I announced my intention to lead with the headline number ex-Census during the period of significant decennial Census employment changes. I thought everyone would lead it this way ... oh well ... at least the decennial Census will be over soon.
Earlier employment posts today:
Employment-Population Ratio, Part Time Workers, Unemployed over 26 Weeks
by Calculated Risk on 8/06/2010 09:50:00 AM
Here are a few more graphs based on the employment report ...
Percent Job Losses During Recessions, aligned at Bottom
Longer. Deeper. And flat at the bottom. Unfortunately that describes the 2007 employment recession.
Click on graph for larger image.
This graph shows the job losses from the start of the employment recession, in percentage terms - this time aligned at the bottom of the recession (Both the 1991 and 2001 recessions were flat at the bottom, so the choice was a little arbitrary).
The dotted line shows the impact of Census hiring. In July, there were 196,000 temporary 2010 Census workers on the payroll. The number of Census workers will continue to decline - and the gap between the solid and dashed red lines will be gone in a few months.
Employment-Population Ratio
The Employment-Population ratio decreased to 58.4% in July from 58.5% in June. This had been increasing after plunging since the start of the recession, and the recovery in the Employment-Population ratio was considered a good sign - but the ratio has now decreased for three consecutive months. 
This graph shows the employment-population ratio; this is the ratio of employed Americans to the adult population.
Note: the graph doesn't start at zero to better show the change.
The Labor Force Participation Rate decreased to 64.6% from 64.7% in June. This is the percentage of the working age population in the labor force. This decline is very disappointing, and the rate is well below the 66% to 67% rate that was normal over the last 20 years.
The reason the unemployment rate was steady at 9.5% was because people left the workforce - and that is not good news. As the employment picture improves, people will return to the labor force, and that will put upward pressure on the unemployment rate.
Part Time for Economic Reasons 
From the BLS report:
The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged over the month at 8.5 million but has declined by 623,000 since April. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.The number of workers only able to find part time jobs (or have had their hours cut for economic reasons) was at 8.53 million in July. This small decline was a little bit of good news.
The all time record of 9.24 million was set in October 2009.
These workers are included in the alternate measure of labor underutilization (U-6) that was steady at 16.5% in July.
Unemployed over 26 Weeks
The blue line is the number of workers unemployed for 27 weeks or more. The red line is the same data as a percent of the civilian workforce.According to the BLS, there are 6.,572 million workers who have been unemployed for more than 26 weeks and still want a job. This is 4.3% of the civilian workforce, just below the record set last month. (note: records started in 1948). The number of long term unemployed might have peaked ... perhaps because people are giving up.
Summary
The underlying details of the employment report were mixed. The positives: a slgiht increase in hours worked and in hourly wages, and the slight decreases in part time workers (for economic reasons) and in the long term unemployed.
The negatives include the weak hiring of only 12,000 ex-Census, the declines in the participation rate and employment-population rate, and the significant downward revision to the June employment report.
Overall this was a weak report.
Earlier employment post today:
July Employment Report: 12K Jobs ex-Census, 9.5% Unemployment Rate
by Calculated Risk on 8/06/2010 08:30:00 AM
From the BLS:
Total nonfarm payroll employment declined by 131,000 in July, and the unemployment rate was unchanged at 9.5 percent, the U.S. Bureau of Labor Statistics reported today. Federal government employment fell, as 143,000 temporary workers hired for the decennial census completed their work. Private-sector payroll employment edged up by 71,000.Census 2010 hiring decreased 143,000 in July. Non-farm payroll employment increased 12,000 in July ex-Census. Also June was revised down sharply to
Click on graph for larger image.This graph shows the unemployment rate and the year over year change in employment vs. recessions.
Nonfarm payrolls decreased by 131 thousand in July. The economy has lost 52 thousand jobs over the last year, and 7.7 million jobs since the recession started in December 2007.
Ex-Census hiring, the economy added 12,000 jobs in July. The unemployment rate was steady at 9.5 percent.
The second graph shows the job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost).The dotted line is ex-Census hiring. The two lines will rejoin later this year when the Census hiring is unwound.
For the current employment recession, employment peaked in December 2007, and this recession is by far the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only early '80s recession with a peak of 10.8 percent was worse).
This is a very weak report, especially considering the downward revision to June. The participation rate declined again, and that is why the unemployment rate was steady - and that is bad news. I'll have much more soon ...
Update: there is much more in the next post: Employment-Population Ratio, Part Time Workers, Unemployed over 26 Weeks
Thursday, August 05, 2010
Jim the Realtor: Auction on the Steps
by Calculated Risk on 8/05/2010 11:29:00 PM
Here is an auction at the court house steps in San Diego. Jim submitted an offer on this house as a short sale at $600K. The bank never responded, and it sold for less at auction ...
Fannie Mae: REO Inventory doubles, expected to increase "significantly"
by Calculated Risk on 8/05/2010 07:55:00 PM
Fannie Mae reported: "a net loss of $1.2 billion in the second quarter of 2010, compared to a net loss of $11.5 billion in the first quarter of the year." and the FHFA requested another $1.5 billion from Treasury.
On house prices, Fannie Mae "expects home prices to decline slightly for the balance of 2010 and into 2011 before stabilizing, and that home sales will be basically flat for all of 2010."
Click on graph for larger image in new window.
Fannie Mae reported that their REO inventory more than doubled since Q2 2009, from 62,615 to 129,310 in Q2 2010.
REO: Real Estate Owned.
See page 11 of the 2010 Second Quarter Credit Supplement (ht jb)
This graph shows the rapid increase in REO.
From Fannie Mae 10-Q (page 9):
During the second quarter of 2010, we acquired approximately 69,000 foreclosed single-family properties, up from approximately 62,000 during the first quarter of 2010, and we disposed of approximately 50,000 single-family properties. The carrying value of the single-family REO we held as of June 30, 2010 was $13.0 billion, and we expect our REO inventory to continue to increase significantly throughout 2010.Freddie Mac and the FHA together have about the same number of REOs as Fannie Mae. When that data is released, I'll put up a chart of all three.
Also this does not include REO held by other lenders and private-label RMBS.
2nd Half Slowdown Update
by Calculated Risk on 8/05/2010 05:11:00 PM
My view is that the real GDP growth rate will slow in the 2nd half, and I've posted a list of the reasons over the last few months:
1) less Federal stimulus spending in the 2nd half of 2010,
2) the end of the inventory correction,
3) more household saving leading to slower growth in personal consumption expenditures,
4) another downturn in housing (lower prices, less residential investment),
5) slowdown in China and Europe and
6) cutbacks at the state and local level.
Note: The first half real GDP growth rate was reported as just over 3% annualized (before revisions).
There have been some updates:
Overall I still expect growth to slow in the 2nd half of 2010, but this lessens some of the expected drag or pushes it out to Q4 or 2011.
Hotel Occupancy Rate at 71% last week
by Calculated Risk on 8/05/2010 01:33:00 PM
Hotel occupancy is one of several industry specific indicators I follow ...
From HotelNewsNow.com: STR: US results for 31 July 2010
In year-over-year measurements, the industry’s occupancy increased 6.8 percent to 71.0 percent. Average daily rate rose 1.5 percent to US$99.27. Revenue per available room increased 8.5 percent to US$70.45.The following graph shows the four week moving average for the occupancy rate by week for 2008, 2009 and 2010 (and a median for 2000 through 2007).
Click on graph for larger image in new window.Notes: the scale doesn't start at zero to better show the change. The graph shows the 4-week average, not the weekly occupancy rate.
On a 4-week basis, occupancy is up 6.3% compared to last year (the worst year since the Great Depression) and 5.7% below the median for 2000 through 2007.
Just over half way back to normal, and almost back to the levels of 2008 (the occupancy rate started to fall off in the 2nd half of 2008).
Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com
Nonsense Rumor on Fannie and Freddie
by Calculated Risk on 8/05/2010 12:28:00 PM
Several people have sent me a political blog post on Reuters: An August Surprise from Obama?
Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billionThe blog post includes the poorly considered proposal from Morgan Stanley (that Tom Lawler responded to last week), and an excerpt from a July 16th Goldman Sachs research note that suggested "while there are ways in which the GSEs could provide support through policy, the effects on the broader economy would ultimately be fairly modest."
Not exactly foretelling a "gigantic bailout".
This nonsense is part of the silly season. Sure, some small changes could be made to Fannie and Freddie, but nothing like this post would suggest.
Not. Gonna. Happen.
Alert Drudge and the tinfoil hat sites - they will run with this story. It is a political post ... I'm already sorry I mentioned it.
Residential Investment Components in Q2
by Calculated Risk on 8/05/2010 11:19:00 AM
More from the Q2 2010 GDP underlying detail tables ...
Note: Residential investment (RI), according to the Bureau of Economic Analysis (BEA), includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.
Click on graph for larger image in new window.
This graph shows the various components of RI as a percent of GDP for the last 50 years. Usually the most important components are investment in single family structures followed by home improvement.
Investment in home improvement was at a $150.8 billion Seasonally Adjusted Annual Rate (SAAR) in Q2, significantly above the level of investment in single family structures of $119.7 billion (SAAR).
Investment in single family structures has been increasing since bottoming in Q2 2009, however - based on home builder comments and a collapse in new home sales - this will decline sharply in Q3.
Brokers' commissions will also decline sharply in Q3 as the number of existing home sales falls off a cliff in July and August (based on pending home sales).
And investment in multifamily structures - already at a series low as a percent of GDP (since 1959) - will decline further in Q3 since completions have been significantly above starts for some time.
According to the BEA, RI contributed 0.59 percentage points to real annualized Q2 GDP growth, and a RI will probably subtract about the same amount from Q3 (part of the 2nd half slowdown).
Weekly Initial Unemployment Claims increase to 479,000
by Calculated Risk on 8/05/2010 08:30:00 AM
The DOL reports on weekly unemployment insurance claims:
In the week ending July 31, the advance figure for seasonally adjusted initial claims was 479,000, an increase of 19,000 from the previous week's revised figure of 460,000. The 4-week moving average was 458,500, an increase of 5,250 from the previous week's revised average of 453,250.
...
The advance number for seasonally adjusted insured unemployment during the week ending July 24 was 4,537,000, a decrease of 34,000 from the preceding week's revised level of 4,571,000.
Click on graph for larger image in new window.This graph shows the 4-week moving average of weekly claims since January 2000.
The four-week average of weekly unemployment claims increased this week by 5,250 to 458,500.
The dashed line on the graph is the current 4-week average. The 4-week average of initial weekly claims has been at about the same level since December 2009 (eight months) and the 4-week average of 458,500 is high historically, and suggests a weak labor market.
This is the highest number of initial weekly claims since April.
Wednesday, August 04, 2010
China's Stress Tests: 60% Decline in House Prices
by Calculated Risk on 8/04/2010 10:26:00 PM
From Bloomberg: China Said to Test Banks for 60% Home-Price Drop
Banks were instructed to include worst-case scenarios of prices dropping 50 percent to 60 percent in cities where they have risen excessively ... Previous stress tests carried out in the past year assumed home-price declines of as much as 30 percent.At least they are realize prices can fall sharply. In some European countries the regulators assumed steady prices was a worst-case economic scenario!
$26 Billion in Aid to States to pass Senate tomorrow
by Calculated Risk on 8/04/2010 06:55:00 PM
From the NY Times: Senate Vote Clears Way for $26 Billion in Aid to States
The Senate on Wednesday cleared the way to provide $10 billion to states and local school districts to prevent teacher layoffs and an additional $16 billion in federal aid to cash-strapped states ... The cost of the current version of the bill is fully paid with other spending cuts and a provision to close a tax loophole ... The $16.1 billion in aid to states would increase the federal government’s contribution toward Medicaid costsThis bill will provide Medicaid funding through the first 6 months of 2011, and the sponsors say it will help save 140,000 teacher jobs.
I'll have another update on the 2nd half slowdown tomorrow, but this will reduce the cutbacks at the state and local level in the 2nd half of 2010.
Q2: Office, Mall and Lodging Investment
by Calculated Risk on 8/04/2010 04:07:00 PM
First - the advance Q2 GDP report released last week showed an annualized real increase of 5.2% for investment in non-residential structures. This broke a streak of seven straight quarterly declines. However the construction spending report released on Monday suggests that most of this gain will be revised away.
Second - with the release of underlying detail data today - we can see that most of the reported gains in Q2 were for power and petroleum mining structures. My guess is some of this investment was related to the BP oil gusher.
If we look at just office, mall and lodging investment, non-residential structure investment continued to decline in Q2.
Click on graph for larger image in new window.
This graph shows investment in offices as a percent of GDP. Office investment as a percent of GDP peaked at 0.46% in Q3 2008 and has declined sharply to a new series low as a percent of GDP (data series starts in 1959).
Reis reported that the office vacancy rate is at a 17 year high at 17.4% in Q2, up from a revised 17.3% in Q1 and 16.0% in Q2 2009. With the office vacancy rate still rising, office investment will probably decline further - although most of the decline in investment has already happened.
The second graph is for investment in malls.
Investment in multimerchandise shopping structures (malls) peaked in 2007 and has fallen by over two-thirds (note that investment includes remodels, so this will not fall to zero). Mall investment is also at a series low (as a percent of GDP) and will probably continue to decline through 2010.
Reis reported that the mall vacancy rate increased in Q2 2010, and was the highest on record at 9.0% for regional malls, and the highest since 1991 for strip malls. 
The third graph is for lodging (hotels).
The bubble boom in lodging investment was stunning. Lodging investment peaked at 0.32% of GDP in Q2 2008 and has fallen by over 70% already. And I expect lodging investment to continue to decline through at least 2010.
As projects are completed there will be little new investment in these categories for some time.
Also notice that investment in all three categories typically falls for a year or two after the end of a recession, and then usually recovers very slowly (flat as a percent of GDP for 2 or 3 years). Something similar will probably happen again, and there will not be a recovery in these categories until the vacancy rates fall significantly.
