by Calculated Risk on 9/03/2009 02:35:00 PM

From The Oregonian: Portland's hotels face grim prospects (ht Shawn)

[F]or two weeks in November and one week each in December and January, the Hilton's presidential suite -- along with all other rooms in [the original 23-story building] -- will go dark. [The newer Hilton will remain open.]
...
Downtown Portland hotels are also facing stiffer competition after Sage Hospitality Resources of Denver opened two new hotels with more than 500 rooms just as market went into its funk. At one of those hotels, The Nines, Sage's business was off so much that it sought a delay in loan payments to the City of Portland's urban renewal agency.

Marks, the Hilton general manager, said early this week that the hotel routinely shuts entire floors during slow weeks to cut cleaning and energy costs. He projects the Hilton's occupancy could be as low as 30 percent in some winter weeks.

It is routine for hotels to close floors, but unusual to close an entire building (although Hilton has a newer tower across the street).

There are a couple of key points in this story: occupancy has declined, especially business related travel, and there is too much new supply on the market. Lower demand meets higher supply, and the result is lower prices - and hotels cutting costs, closing buildings, and more and more hotels unable to meet their debt payments - and some even unable to make their payroll.

by Calculated Risk on 9/03/2009 12:36:00 PM

Note: Last year Labor Day was a week earlier (Sept 1st in 2008, Sept 7th this year) and the Democratic National Convention was held August 25th to the 28th, both make the year-over-year comparison more difficult this week.

From HotelNewsNow.com: Labor Day, Democratic National Convention hampers US weekly numbers

Overall, the U.S. industry’s occupancy fell 12.4 percent in year-over-year comparisons to end the week at 54.4 percent. Average daily rate dropped 11.0 percent to finish the week at US$94.01. Revenue per available room for the week decreased 22.0 percent to finish at US$51.10.

Click on graph for larger image in new window.

This graph shows the YoY change in the occupancy rate (3 week trailing average).

The three week average is off 8.9% from the same period in 2008.

The average daily rate is down 11%, and RevPAR is off 22% from the same week last year.

Earlier this year business travel was off much more than leisure travel. So it was expected that the summer months would not be as weak as earlier in the year. September - after Labor Day (Sept 7th) - will be the real test for business travel, and for the hotel industry.

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

by Calculated Risk on 9/03/2009 10:00:00 AM

The August 2009 Manufacturing ISM report showed expansion, but the non-manufacturing sector was still contracting in August.

From the Institute for Supply Management: August 2009 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector contracted in August, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

... "The NMI (Non-Manufacturing Index) registered 48.4 percent in August, 2 percentage points higher than the 46.4 percent registered in July, indicating contraction in the non-manufacturing sector for the 11th consecutive month but at a slower rate. The Non-Manufacturing Business Activity Index increased 5.2 percentage points to 51.3 percent. This is the first time this index has reflected growth since September 2008. The New Orders Index increased 1.8 percentage points to 49.9 percent, and the Employment Index increased 2 percentage points to 43.5 percent. The Prices Index increased 21.8 percentage points to 63.1 percent in August, indicating a substantial increase in prices paid from July. According to the NMI, six non-manufacturing industries reported growth in August. Respondents' comments are mixed about business conditions and the overall economy; however, there is an increase in comments indicating that there are signs of improvement going forward."
emphasis added

The service sector was still contracting in August, although contracting at a slightly slower pace than in July.

No recovery yet in the service sector ...

by Calculated Risk on 9/03/2009 08:30:00 AM

The DOL reports weekly unemployment insurance claims decreased to 570,000:

In the week ending Aug. 29, the advance figure for seasonally adjusted initial claims was 570,000, a decrease of 4,000 from the previous week's revised figure of 574,000. The 4-week moving average was 571,250, an increase of 4,000 from the previous week's revised average of 567,250.
...
The advance number for seasonally adjusted insured unemployment during the week ending Aug. 22 was 6,234,000, an increase of 92,000 from the preceding week's revised level of 6,142,000.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since 1971.

The four-week average of weekly unemployment claims increased this week by 4,000 to 571,250, and is now 87,500 below the peak in April.

It appears that initial weekly claims have peaked for this cycle. However it seem that weekly claims are stuck at a very high level; weekly claims have been around 570,000 for the last 8 weeks. This indicates continuing weakness in the job market. The four-week average of initial weekly claims will probably have to fall below 400,000 before the total employment stops falling.

by Calculated Risk on 9/02/2009 11:15:00 PM

We've been discussing accidental landlords for a couple of years. Here is another article about homeowners becoming landlords out of necessity, from the WSJ: The Reluctant Landlords

With housing prices still in the dumps, many Americans are finding themselves in the uncomfortable position of landlord.
...
Hard data are scant on how many homeowners are renting out their homes, but anecdotal evidence suggests numbers are up. In one indication of the trend: More homeowners are converting their homeowners insurance to landlord policies that cover the additional risks of leasing out a home. Allstate Corp., the second largest home insurer in the U.S., reported a 27% increase in conversions in the first quarter from the previous year.

The article discusses a few hapless homeowners, and I'll give the same advice as last year:

[T]hese accidental landlords are looking at prices from a few years ago, and deciding to wait to sell. In general this is a mistake. Owners should analyze the rent or sell decision based on current prices - and consider the probability that nominal prices will move lower or at best stay flat for several years.

This is part of the shadow inventory that will eventually be sold and will help keep inventory levels high for years.

And on the shadow inventory, here is an excerpt from: The Surge in Rental Units

The supply of rental units has been surging:

Click on graph for larger image in new window.

This graph shows the number of occupied (blue) and vacant (red) rental units in the U.S. (all data from the Census Bureau).

The total number of rental units (red and blue) bottomed in Q2 2004, and started climbing again. Since Q2 2004, there have been over 4.3 million units added to the rental inventory.
...
This increase in units has more than offset the recent strong migration from ownership to renting, so the rental vacancy rate is now at a record 10.6%.

Where did these approximately 4.3 million rental units come from?

The Census Bureau's Housing Units Completed, by Intent and Design shows 1.1 million units completed as 'built for rent' since Q2 2004. This means that another 3.2 million or so rental units came mostly from conversions from ownership to rentals.

These could be investors buying REOs for cash flow, condo "reconversions", builders changing the intent of new construction (started as condos but became rentals), flippers becoming landlords, or homeowners renting their previous homes instead of selling.

Whatever the reason for the conversion, many of these 3.2 million units are part of the shadow housing inventory. Especially the properties owned by accidental landlords, who will sell as soon as possible.