by Calculated Risk on 10/27/2011 03:07:00 PM

From the National Multi Housing Council (NMHC): Development Ramps Up as Demand Swells Finds NMHC Quarterly Survey

Increased demand for rental housing has led to a considerable uptick in multifamily construction, finds the National Multi Housing Council’s (NMHC) latest Quarterly Survey of Apartment Market Conditions.

The pace of development activity has increased in most markets. Two-thirds (67%) of respondents noted considerable activity, either in the planning stage or actual new construction. In particular, 20% said developers are breaking [ground] on new projects at a rapid clip. The other 47% reported an increase in pre-construction activities—acquiring land, lining up financing, getting building permits—but not much actual construction yet.

Even with this increased activity, more than half (54%) think new development remains considerably below demand.

"Powerful demographic trends along with changing attitudes about homeownership and tighter mortgage underwriting continue to drive a shift toward renting, which is fueling a ramp up in new construction," noted NMHC Chief Economist Mark Obrinsky. "While some survey respondents expressed concern over sporadic overbuilding, others noted that the lack of construction financing may prevent some developments from actually breaking ground."

Overall, the apartment market continued its healthy growth, although there is some evidence of a slowdown. For the sixth time in the last seven quarters, all four market indexes were above 50—a reading above 50 indicates improving market conditions—although all four fell, suggesting less widespread growth than the prior quarter.

"A narrowing in the extent of the improvement is not unexpected after almost two years of strong gains," said Obrinsky. "As long as the economy continues to generate jobs, the apartment upswing should remain on track."

Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index.

The index has indicated tighter market conditions for the last seven quarters and although down from the record 90 earlier this year, this still suggests falling vacancy rates and or rising rents.

This fits with the recent Reis data showing apartment vacancy rates fell in Q3 2011 to 5.6%, down from 6.0% in Q2 2011, and 9.0% at the end of 2009. Based on this index, I expect the declines in vacancy rates to slow.

New multi-family construction is one of the few bright spots for the U.S. economy and this survey indicates demand for apartments is still strong.

A final note: This index helped me call the bottom for effective rents (and the top for vacancy rate) early last year.

by Calculated Risk on 10/27/2011 01:14:00 PM

From HotelNewsNow.com: Miami reports strongest weekly RevPAR gain

Overall, the U.S. hotel industry’s occupancy rose 4% to 66.2%, average daily rate increased 4.4% to US$105.49, and RevPAR finished the week up 8.6% to US$69.88.

Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.

The following graph shows the seasonal pattern for the hotel occupancy rate using a four week average for the occupancy rate.

Click on graph for larger image.

We are now in the fall business travel season. The 4-week average of the occupancy rate has increased again seasonally. In September, the 4-week average was back to the pre-recession median, but October fall business travel was less than normal - but still better than last year.

The second graph shows the 4-week average of the occupancy rate as a percent of the median since 2000. Note: Since this is a percent of the median, the number can be above 100%.

This shows the decline in the occupancy rate during and following the 2001 recession. The sharp decline in 2001 was related to 9/11, and the sharp increase towards the end of 2005 was due to Hurricane Katrina.

The occupancy rate really fell off a cliff in 2008. After briefly recovering to the median, this measure has declined over the last month.

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

by Calculated Risk on 10/27/2011 10:37:00 AM

According to the Bureau of Economic Analysis (BEA), real GDP is finally just above the pre-recession peak. The estimate for real GDP in Q3 (2005 dollars) was $13,352.8 billion, 0.2% above the $13,326.0 billion in Q4 2007. Nominal GDP was reported as $15,198.6 billion in Q3 2011.

The following graph is constructed as a percent of the previous peak. This shows when GDP has bottomed - and when GDP has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%.

At the worst point, real GDP was off 5.1% from the 2007 peak. Since the most common definition of a depression is a 10%+ decline in real GDP, the 2007 recession was not a depression. Note: There is no formal definition of a depression. Some people use other definitions such as the duration below the previous peak. By that definition, using both GDP and employment, this seems like the "Lesser depression", but not by the common definition.

Click on graph for larger image.

This graph is for real GDP through Q3 2011 and shows real GDP is back to the the pre-recession peak.

Note: There are really two measures of GDP: 1) real GDP, and 2) real Gross Domestic Income (GDI). The BEA will release GDI with the 2nd GDP estimate for Q3. GDI was back to the pre-recession peak in Q2.

The following graph shows the rolling 4 quarter contribution to GDP from residential investment, equipment and software, and nonresidential structures. This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

For the following graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. The usual pattern - both into and out of recessions is - red, green, blue.

Residential Investment (RI) made a positive contribution to GDP in Q3 2011, and the four quarter rolling average finally turned positive in Q3.

Equipment and software investment has made a significant positive contribution to GDP for nine straight quarters (it is coincident).

The contribution from nonresidential investment in structures was positive in Q3. Nonresidential investment in structures typically lags the recovery, however investment in energy and power is masking weakness in office, mall and hotel investment (the underlying details will be released next week).

The key leading sector - residential investment - has lagged this recovery because of the huge overhang of existing inventory. Usually RI is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and this is a key reason why the recovery has been sluggish so far.

Although Residential Investment (RI) increased slightly in Q3, RI as a percent of GDP declined slightly - and RI as a percent of GDP is at a new record low.

I'll break down Residential Investment (RI) into components after the GDP details are released this coming week. Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

As expected, RI is increasing slowly in 2011 and it looks like RI will add to both GDP and employment growth - for the first time since 2005. It won't be much, but it will probably be positive.

The last graph shows non-residential investment in structures and equipment and software.

Equipment and software investment has been increasing sharply, however several tech companies have lowered their outlooks - so investment in equipment and software might slow in Q4.

Non-residential investment in structures increased in Q3. I'll add details for investment in offices, malls and hotels next week.

Earlier ...
• Advance Estimate: Real Annualized GDP Grew at 2.5% in Q3

by Calculated Risk on 10/27/2011 08:51:00 AM

The DOL reports:

In the week ending October 22, the advance figure for seasonally adjusted initial claims was 402,000, a decrease of 2,000 from the previous week's revised figure of 404,000. The 4-week moving average was 405,500, an increase of 1,750 from the previous week's revised average of 403,750.

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 increased this week to 405,500.

This is down from September, but still elevated - and still above the post-recession lows of earlier this year.

The next graph shows the 4-week average since 1971:

by Calculated Risk on 10/27/2011 08:30:00 AM

From the BEA:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.5 percent in the third quarter of 2011 (that is, from the second quarter to the third quarter) according to the "advance" estimate released by the Bureau of Economic Analysis.

The acceleration in real GDP in the third quarter primarily reflected accelerations in PCE and in nonresidential fixed investment and a smaller decrease in state and local government spending that were partly offset by a larger decrease in private inventory investment.

The following graph shows the quarterly GDP growth (at an annual rate) for the last 30 years. The dashed line is the current growth rate. Growth in Q2 at 2.5% annualized was below trend growth (around 3%) - and very weak for a recovery, especially with all the slack in the system.

Click on graph for larger image.

A few key numbers:
• Real personal consumption expenditures increased 2.4 percent in the second quarter, compared with an increase of 0.7 percent in the second.

• Change in private inventories subtracted 1.08 percentage point.

• Investment: "Real nonresidential fixed investment increased 16.3 percent in the third quarter, compared with an increase of 10.3 percent in the second. Nonresidential structures increased 13.3 percent, compared with an increase of 22.6 percent. Equipment and software increased 17.4 percent, compared with an increase of 6.2 percent. Real residential fixed investment increased 2.4 percent, compared with an increase of 4.2 percent.."

I'll have much more later today ...