by Calculated Risk on 10/06/2010 01:49:00 PM

From Treasury Secretary Geithner: Remarks at the Brookings Institution

[F]or the recovery to be sustainable, there must ... be a change in the pattern of global growth. For too long, many countries oriented their economies toward producing for export rather than consuming at home, counting on the United States to import many more of their goods and services than they bought of ours.

The United States will do its part to achieve this adjustment. Private savings have increased significantly, and, as the recovery strengthens, we will bring down our fiscal deficits to a sustainable level.

But as America saves more, countries overly reliant on exports to us for their own growth will need to change their policies, or else global growth will slow and all of us will be worse off. Countries that chronically run large surpluses need to undertake policies that will boost their domestic demand.
...
That brings me to the second policy challenge: we believe it is very important to see more progress by the major emerging economies to more flexible, more market-oriented exchange rate systems. This is particularly important for those countries whose currencies are significantly undervalued.

This is a problem because when large economies with undervalued exchange rates act to keep the currency from appreciating, that encourages other countries to do the same.

This sets off a damaging dynamic, described first by my former colleague Ted Truman, as "competitive non appreciation." Over time, more and more countries face stronger pressure to lean against the market forces pushing up the value of their currencies. The collective impact of this behavior risks either causing inflation and asset bubbles in emerging economies, or else depressing consumption growth and intensifying short-term distortions in favor of exports.

This is a multilateral problem. It is unfair to countries that were already running more flexible regimes and let their currencies appreciate. And it requires a cooperative approach to solve, because emerging economies individually will be less likely to move, unless they are confident other countries would move with them.

This problem exposes once again the need for an effective multilateral mechanism to encourage economies running current account surpluses to abandon export-oriented policies, let their currencies appreciate, and strengthen domestic demand.

This was aimed primarily at China, but also at other countries with export driven economies. Everyone can't devalue at once ...

by Calculated Risk on 10/06/2010 11:35:00 AM

This is the 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-Sale Indices

General commercial real estate and the broad-based CoStar composite index for all commercial real estate reversed the positive trend reported in last month’s findings and came in at -3.48% and -1.38% respectively for the month of August. ...

Repeat sales values for investment grade commercial property reversed their negative trend from July and moved positive again with a 3.73% climb in August. We continue to see a significant spread in cap rates and prices from the larger property in prime core markets to the property in second- and third-tier broader markets. Even with tighter financing, there appears to be plenty of institutional and REIT capital oriented to the lower-risk core markets.

For the past three months, all three indices are negative at -3.92% for the broad general index, -3.24% for investment grade and -3.92% for the composite. For the past 12 months, all three indices are down approximately 10% to 11%.

One reason for the volatility of these indices discussed here is the proportion of distress sales, which are continuing to climb in absolute levels, although as a percentage of sales they have leveled since June. This volume of distressed sales, while certainly not a tsunami, is still significant especially among lodging and multifamily properties.
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 since the beginning of the year, but the overall index is still declining.

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.

On the number of transactions:

The CCRSI September report is based on sales data through the end of August. In August, 559 sales pairs were recorded.
...
Distress continues to be a significant factor in the index results. Since 2007, the ratio of distressed sales to overall sales has increased from approximately 1% to approximately 23% currently. Discounts on distressed property sales (REOs and short sales) compared to non-distressed sales are running an average of 40% for multifamily, 20% for office and industrial and 17% for retail property based on 2010 data to date.

by Calculated Risk on 10/06/2010 08:15:00 AM

ADP reports:

Private-sector employment decreased by 39,000 from August to September on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The estimated change of employment from July to August was revised up from the previously reported decline of 10,000 to an increase of 10,000.

The decline in private employment in September confirms a pause in the economic recovery already evident in other data. A deceleration of employment occurred in all the major sectors shown in The ADP Report and for all sizes of payroll.
...
Unlike the estimate of total establishment employment to be released on Friday by the Bureau of Labor Statistics (BLS), today’s ADP National Employment Report does not include the effects of federal hiring — and now firing — for the 2010 Census.

Note: ADP is private nonfarm employment only (no government jobs).

The consensus was for ADP to show an increase of about 23,000 private sector jobs in September, so this was way below consensus.

The BLS reports on Friday, and the consensus is for no change in payroll jobs in September, on a seasonally adjusted (SA) basis, with the loss of around 78,000 temporary Census 2010 jobs (+78,000 ex-Census).

by Calculated Risk on 10/06/2010 07:32:00 AM

The MBA reports: Sharp Jump in Purchase Activity Led by Applications for FHA Loans in Latest MBA Weekly Survey

The Refinance Index decreased 2.5 percent from the previous week. The seasonally adjusted Purchase Index increased 9.3 percent from one week earlier and is the highest Purchase Index observed in the survey since the week ending May 7, 2010.
...
“The increase in purchase activity was led by a 17.2 percent increase in FHA applications, while conventional purchase applications also increased by 3.6 percent,” said Jay Brinkmann, MBA’s Chief Economist. “This is the second straight weekly increase in purchase applications and the highest Purchase Index level since the expiration of the homebuyer tax credit program. One possible driver of last week’s big increase in FHA applications was a desire by borrowers to get applications in before new FHA requirements took effect October 4th, which included somewhat higher credit score and down payment requirements.”
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.25 percent from 4.38 percent, with points decreasing to 1.00 from 1.01 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The 30-year contract rate is the lowest recorded in the survey, with the previous low being the rate observed last week.

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 1990.

This is the highest level of purchase activity since the end of the homebuyer tax credit, however the level is still very low - and much of the increase was driven by FHA applications that may decline next week (because of slightly tighter lending requirements).

Note that the 30 year contract rate is at another record low of 4.25%.

by Calculated Risk on 10/05/2010 11:59:00 PM

From Ilaina Jonas at Reuters: US apartment vacancy rate drops sharply in 3rd qtr

The national vacancy rate fell to 7.2 percent from 7.8 percent in the second quarter ...

Factoring months of free rent and other concessions landlords used to lure tenants, effective rent was up 0.6 percent to $980 per month, Reis said.

This is a significant decline from record vacancy rate set in Q1 at 7.9%. This decline fits with the recent survey from the NMHC that showed lower apartment vacancies.

It appears the vacancy rate for large apartment buildings (and rents) bottomed early this year. This is something to watch - and indicates the excess housing inventory (that includes both vacant homes and apartments) is being absorbed.

Note: the Reis numbers are for cities. The overall vacancy rate from the Census Bureau was at a near record 10.6% in Q2 2010.