by Calculated Risk on 1/09/2013 09:19:00 AM

Reis reported that the vacancy rate for regional malls declined to 8.6% in Q4 from 8.7% in Q3. This is down from a cycle peak of 9.4% in Q3 2011.

For Neighborhood and Community malls (strip malls), the vacancy rate declined to 10.7% in Q4, down from 10.8% in Q3. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.

Comments from Reis Senior Economist Ryan Severino:

[Strip mall] Vacancy declined by only 10 bps during the fourth quarter. This was an improvement versus the third quarter when the vacancy rate was unchanged. On a year‐over‐year basis, the vacancy rate declined by only 30 bps. During the quarter absorption exceeded construction by a sufficient enough margin to lower the vacancy rate, but only marginally. With only 915,000 square feet delivered, more robust demand would cause vacancy to compress expeditiously. But even with so few completions occurring, the economy is not generating enough demand for space.
...
Asking and effective rents grew by 0.2% and 0.1%, respectively, during the quarter. This was only a negligible increase versus the third quarter when both metrics increased by just 0.1%. It was the fifth consecutive quarter that asking and effective rents have increased.
...
[New construction] With tepid retail sales and scant demand for space, new construction remained near record‐low levels during the quarter. 915,000 square feet were delivered during the fourth quarter, versus 723,000 square feet during the third quarter. However, this is a slowdown compared to the 2.951 million square feet of retail space that were delivered during the fourth quarter of 2011. In fact, 915,000 square feet is the fifth‐lowest figure on record since Reis began tracking quarterly data in 1999.
...
[Regional] Malls continue to outperform their neighborhood and community shopping center comrades. The vacancy rate declined by another 10 basis points during the quarter. This is the fifth consecutive quarter with a vacancy decline. Asking rent growth declined slightly versus last quarter, growing by another 0.2%. This was the seventh consecutive quarter of asking rent increases. The improvement in mall subsector remains consistent if not exhilarating.

Click on graph for larger image.

This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The regional mall data starts in 2000. Back in the '80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.

In the mid-'00s, mall investment picked up as mall builders followed the "roof tops" of the residential boom (more loose lending). This led to the vacancy rate moving higher even before the recession started. Then there was a sharp increase in the vacancy rate during the recession and financial crisis.

The yellow line shows mall investment as a percent of GDP through Q3. This has increased from the bottom because this includes renovations and improvements. New mall investment has essentially stopped.

The good news is, as Severino noted, new square footage is near a record low, and with very little new supply, the vacancy rate will probably continue to decline slowly.

Mall vacancy data courtesy of Reis.

by Calculated Risk on 1/08/2013 09:10:00 PM

Over there ... from the NY Times: Unemployment Rises to New High in Euro Zone

The euro zone jobless rate rose to 11.8 percent in November from 11.7 percent in October, according to Eurostat, the statistical agency of the European Union. Eurostat estimated that 18.8 million people in the euro zone were unemployed in November, two million more than a year earlier.

... on Tuesday, the Federal Statistics Office in Berlin said that German exports declined 3.4 percent while imports slid 3.7 percent in November from a month earlier. The weakness narrowed Germany’s trade surplus to €14.6 billion ...

Austerity at work. The beatings will continue until morale improves.

Wednesday economic releases:
• Early: Reis Q4 2012 Mall survey of rents and vacancy rates. In Q3 Reis reported the regional mall vacancy rate declined to 8.7%, from 8.9% in Q2. The vacancy rate peaked at 9.4% in Q3 2011. For Neighborhood and Community malls (strip malls), the vacancy rate was unchanged at 10.8% in Q3. For strip malls, the vacancy rate peaked at 11.0% in Q2 2011.

• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

by Calculated Risk on 1/08/2013 04:27:00 PM

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities.

From the GLVAR: GLVAR reports home prices increased 24 percent in 2012,ranking as third best sales year ever

GLVAR said the total number of local homes, condominiums and townhomes sold in December was 3,624. That’s up from 3,293 in November, but down from 4,250 total sales in December 2011. Compared to November, single-family home sales during December increased by 10.4 percent, while sales of condos and townhomes increased by 8.5 percent. Compared to one year ago, home sales were down 14.3 percent, while condo and townhome sales were down 16.5 percent.
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The total number of homes listed for sale on GLVAR’s Multiple Listing Service declined in December, with a total of 14,601 single-family homes listed for sale at the end of the month. That’s down 6.6 percent from 15,637 homes listed for sale at the end of November and down 24.1 percent from one year ago. ...

[T]he number of available homes listed for sale without any sort of pending or contingent offer by the end of December, GLVAR reported 3,688 single-family homes listed without any sort of offer. That’s down 4.2 percent from 3,849 such homes listed in November and down 58.2 percent from one year ago.
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GLVAR’s statistics through December 2012 show a dramatic transition from foreclosures to short sales – which occur when a lender agrees to sell a home for less than what the borrower owes on the mortgage. The percentage of existing homes sold as part of a short sale set a new record in December, accounting for 45.8 percent of all sales. Foreclosures, which made up more than half of all sales a few years ago, accounted for only 9.5 percent of all sales in December 2012.

A few key points:
• Inventory decreased in December, and inventory is down 24.1% from Decmeber 2011.  For single family homes without contingent offers, inventory is down sharply from a year ago (down 58.2% year-over-year).

• Short sales are more than four times foreclosures now. The GLVAR reported a record 45.8% of sales were short sales in December, and only 9.5% foreclosures. We've seen a shift from foreclosures to short sales in most areas (not just in areas with new foreclosure laws).  Note: Some of the surge in short sales might have been to beat the expiration of the Mortgage Debt Relief Act of 2007.  The Act  was extended as part of the fiscal deal, so the number of short sales should remain high in 2013.

• The decline in overall sales is because of fewer foreclosure sales (Las Vegas had a record number of real estate sales in 2011, even higher than at the peak of the bubble in 2005, because of all the distressed sales!). As the market slowly recovers, the number of distressed sales should fall and the number of conventional sales should rise. This has been happening in Las Vegas, although distressed sales were up some in December compared to November due to seasonal factors.

Overall this is a slowly improving distressed market. Note: I ignore the median price because that is impacted by the mix.

by Calculated Risk on 1/08/2013 01:35:00 PM

Earlier I posted some questions for this year: Ten Economic Questions for 2013. I'll try to add some thoughts, and maybe some predictions for each question.

Note: Here is a review of my 2012 Forecasts

6) Monetary Policy: Currently the Fed is planning to buy $85 billion in Treasury and agency mortgage-backed securities per month as part of the open-ended QE3. Will the Fed continue all year at this pace? Or will the Fed increase their purchase rate? Or will the Fed decrease their purchase rate, stop these purchases, or even sell some securities?

First - I wrote this question before the recent FOMC minutes were released. The minutes revealed that several FOMC members expect QE3 to end in 2013. Of course the level of QE3 purchases in 2013 will be data dependent - if the economy remains sluggish, the unemployment rate remains high,  and inflation expectations remain stable, the FOMC will continue to purchase $85 billion per month all year. If the economy picks up, or inflation expectations increase - the FOMC will probably slow or stop their purchases.

It is important to note that slowing or stopping the purchases doesn't mean the Fed is tightening. Policy will remain accomodative all year (I doubt the Fed will purchase securities and reduce their balance sheet in 2013, and it is very doubtful they will raise the Fed Funds rate this year).

Last year I wrote for 2012:

• I expect the Fed will change their communication strategy and add a likely future path of the Fed Funds rate to the quarterly economic forecasts.

• I think QE3 is likely, but more towards mid-year - and [timing] is data dependent.

The Fed introduced the new communication strategy, and then changed it again based on "thresholds" near the end of 2012.  On QE3, they waited a little longer than I expected, and the FOMC announced QE3 in September.

This year I don't think we will see as many monetary changes.

I expect the FOMC will review their purchases at each meeting just like they used to review the Fed Funds rate.  We might see some adjustments during the year, but currently I expect the Fed to purchase securities at about the same level all year.

Here are the ten questions for 2013 and a few predictions:
• Question #1 for 2013: US Fiscal Policy
• Question #2 for 2013: Will the U.S. economy grow in 2013?
• Question #3 for 2013: How many payroll jobs will be added in 2013?
• Question #4 for 2013: What will the unemployment rate be in December 2013?
• Question #5 for 2013: Will the inflation rate rise or fall in 2013?
• Question #6 for 2013: What will happen with Monetary Policy and QE3?
• Question #7 for 2013: What will happen with house prices in 2013?
• Question #8 for 2013: Will Housing inventory bottom in 2013?
• Question #9 for 2013: How much will Residential Investment increase?
• Question #10 for 2013: Europe and the Euro

by Calculated Risk on 1/08/2013 10:55:00 AM

Earlier I posted some questions for this year: Ten Economic Questions for 2013. I'll try to add some thoughts, and maybe some predictions for each question.

Note: Here is a review of my 2012 Forecasts

7) House Prices: It now appears house prices, as measured by the national repeat sales indexes, bottomed in early 2012? What will happen with house prices in 2013?

Calling the bottom for house prices in 2012 now appears correct.

Click on graph for larger image.

This graph shows the year-over-year change in the Case-Shiller Composite 10 and Composite 20 indexes.

The Composite 10 SA was up 3.4% YoY in October, and the Composite 20 SA was up 4.3% year-over-year. Other house price indexes have indicated similar gains. Right now it looks like the Case-Shiller Composite 20 index will finish the year up about 6%.

Note: the year-over-year gain in 2010 was related to the homebuyer tax credit.  However, in 2010, prices were still too high based on fundamentals.   However, when prices started increasing in 2012, prices were more in line with fundamentals based on price-to-income, price-to-rent and real house prices.

Some of the key factors in 2012 were limited inventory, fewer foreclosures, investor buying in certain areas, and a change in psychology as buyers and sellers started believing house prices had bottomed. In some areas, like Phoenix, there appeared to be a bounce off the bottom.

In 2013, inventories will probably remain low - suggesting more house price increases - and there also tends to be significant momentum in house prices (also suggesting more increases in 2013).

However, even though I expect inventories to be low this year, I think we will see more inventory come on the market in 2013 than 2012, as sellers who were waiting for a better market list their homes, and as some "underwater" homeowner (those who owe more than their homes are worth) finally can sell without taking a loss.

Also I expect more foreclosure in some judicial states, and I think the price momentum in Phoenix and other "bounce back" areas will slow.

All of these factors suggest further prices increases in 2013, but at a slower rate than in 2012.   Here are some other house prices forecasts ranging from 1.4% to 4.8% increases in 2013.  It looks like I'm in the consensus this year (I was out of the consensus in 2012).

Here are the ten questions for 2013 and a few predictions:
• Question #1 for 2013: US Fiscal Policy
• Question #2 for 2013: Will the U.S. economy grow in 2013?
• Question #3 for 2013: How many payroll jobs will be added in 2013?
• Question #4 for 2013: What will the unemployment rate be in December 2013?
• Question #5 for 2013: Will the inflation rate rise or fall in 2013?
• Question #6 for 2013: What will happen with Monetary Policy and QE3?
• Question #7 for 2013: What will happen with house prices in 2013?
• Question #8 for 2013: Will Housing inventory bottom in 2013?
• Question #9 for 2013: How much will Residential Investment increase?
• Question #10 for 2013: Europe and the Euro