by Calculated Risk on 4/10/2015 10:30:00 PM

Overall the office vacancy rate is falling, but still too high to spur a significant amount of new construction. However there are some submarkets that might see some new investment.

From Roger Vincent at the LA Times: L.A. County office market tightens in first quarter

Overall Los Angeles County vacancy fell to 16% in the first quarter from 18% in the same period a year earlier, according to the brokerage. Landlords raised their average asking rents 6%, to $2.73 per square foot a month.

But the county office market has many submarkets, among which demand and rent vary widely. The popular Westside, for example, has been improving for the last few years even as other submarkets, including downtown Los Angeles, were stagnant.
...
"We have a dozen submarkets below 10% vacancy now," [Petra Durnin, managing director of research for real estate brokerage Cushman & Wakefield] said. "That indicates the market strength we have been feeling is a reality."

Vacancy below 10% is considered a tight market, one that favors landlords in rent negotiations with tenants. Developers are also inclined to build new offices when vacancy falls below 10%, but so far there is little construction compared with other periods of prosperity in recent history.

No large office buildings came online in the first quarter, Durnin said, and only 1.5 million square feet of offices are under construction — a fraction of the existing inventory of 195.8 million square feet in L.A. County.

by Calculated Risk on 4/10/2015 03:59:00 PM

From housing economist Tom Lawler:

Based on the limited number of local realtor/MLS reports I’ve seen from across the country, I estimate that existing home sales as measured by the National Association of Realtors ran at a seasonally adjusted annual rate of about 5.10 million in March, up 4.5% from February’s pace and up 8.5% from last March’s seasonally-adjusted pace. Normally I wait until I have a larger sample of local reports to project the NAR sales number to publish a projection, and my “spot” estimate is subject to a wider-than-normal forecast error. I have, however, seen a sufficient number of reports to project that March existing home sales – again, as measured by the NAR – will show a sizable monthly gain.

On the inventory front, I project that the NAR’s measure of the inventory of existing homes for sale at the end of March will be 1.96 million, up 3.7% from February and unchanged from a year ago. Finally, I estimate that the NAR’s estimate of the median existing SF home sales price in March will be about 8% higher than a year earlier.

The NAR is scheduled to release its March existing home sales report on April 22nd. I will send out an updated projection near the middle of next week.

by Calculated Risk on 4/10/2015 01:11:00 PM

In addition to Case-Shiller, and CoreLogic, I'm also watching the FNC, Zillow and several other house price indexes.

FNC released their February 2015 index data today.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 0.6% from January to February (Composite 100 index, not seasonally adjusted). 

The 10 city MSA, the 20-MSA and 30-MSA RPIs all increased by about 1% in February. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).

Notes: In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data.

The year-over-year (YoY) change was about the same in February as in January, with the 100-MSA composite up 4.3% compared to February 2014. For FNC, the YoY increase has been slowing since peaking in March at 9.0%.

The index is still down 19.4% from the peak in 2006 (not inflation adjusted).

Click on graph for larger image.

This graph shows the year-over-year change based on the FNC index (four composites) through February 2015. The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals.

Most of the other indexes are showing the year-over-year change mostly steady at around 5% for the last several months.

Note: The February Case-Shiller index will be released on Tuesday, Tuesday, April 28th.

by Calculated Risk on 4/10/2015 10:30:00 AM

We recently saw another spate of recession calls (my response was R-E-L-A-X). There are several reasons for the recent economic weakness including seasonal factors, poor weather, the West Cost port slowdown, the stronger dollar and lower oil prices (the negative impacts are more obvious, but overall lower prices will be a positive).  It looks like consumer spending in March was solid.

Excerpts from a research note from BofA: "Farewell winter blues"

There is finally good news to report on the US consumer. Spending on BAC credit and debit cards was up sharply in March, following a string of weak reports. Our measure of core retail sales - ex-autos and gasoline sales - increased 0.9% mom on a seasonally adjusted basis in March. This is a notable improvement from the past three months of essentially no growth. If we include gasoline station sales, the swing is even more dramatic given the significant adjustment in gasoline prices. ...

As always when analyzing economic data, we have to be careful not to overreact to just one report. The gain in March follows several months of weak data, making the comparisons more favorable. Moreover, the early Easter holiday might have sent people shopping in late March. The weather is also an important factor; ... the regions with the harshest winter weather showed the largest declines in February and strongest gains in March.

We are hopeful that the gain in March is the beginning of a healthier trajectory for consumer spending. As we have been arguing, all signs point to a solid consumer backdrop. ... Households have repaired their balance sheets and animal spirits have improved with consumer confidence trending higher. We are therefore holding to our core view that consumer spending will accelerate into 2Q, providing much-need support to GDP tracking.

by Calculated Risk on 4/09/2015 08:09:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 4 April

he U.S. hotel industry recorded mixed results in the three key performance measurements during the week of 29 March through 4 April 2015, according to data from STR, Inc.

In year-over-year measurements, the industry’s occupancy decreased 4.0 percent to 62.9 percent. Average daily rate increased 3.4 percent to finish the week at US$116.01. Revenue per available room for the week was down 0.7 percent to finish at US$72.93.

“The industrywide decline in RevPAR was driven by softness related to Passover and Easter,” said Brad Garner, STR’s senior VP for client relationships. “This was the first time in 49 weeks that U.S. RevPAR was negative for a week—the longest stretch of positive weekly RevPAR growth STR has ever tracked. The last time RevPAR went negative for a week (-0.3 percent) was the week heading into Passover and Easter in 2014. We would anticipate a quick RevPAR return to normalcy and another positive streak into the foreseeable future. STR is projecting an annual RevPAR increase of 6.4 percent in 2015.”
emphasis added

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

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

Hotels are now in the Spring travel period and business travel will be solid over the next couple of months (the decline was related to the timing of Easter and Passover).

Click on graph for larger image.

The red line is for 2015, dashed orange is 2014, blue is the median, and black is for 2009 - the worst year since the Great Depression for hotels.  Purple is for 2000.

The 4-week average of the occupancy rate is solidly above the median for 2000-2007, and solidly above 2014.

So far 2015 is close to 2000 (best year for hotels) - and 2015 will probably be the best year on record for hotels.

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