by Calculated Risk on 1/19/2011 12:01:00 AM

Note: This index is a leading indicator for new Commercial Real Estate (CRE) investment.

From the American Institute of Architects: Architecture Billings Index (ABI) for December

“On the heels of its highest mark since 2007, the Architecture Billings Index (ABI) jumped more than two points in December. ... The American Institute of Architects (AIA) reported the December ABI score was 54.2, up from a reading of 52.0 the previous month. This score reflects an increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 62.6, up slightly from a mark of 61.4 in November.”

“This is more promising news that the design and construction industry is continuing to move toward a recovery,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. "However, historically December is the most unpredictable month from a business standpoint, and therefore the most difficult month from which to interpret a trend. The coming quarter will give us a much better sense of the strength of the apparent upturn in design activity.”

Click on graph for larger image in new window.

This graph shows the Architecture Billings Index since 1996. The index showed expansion in December (above 50) and this is the highest level since December 2007.

Note: Nonresidential construction includes commercial and industrial facilities like hotels and office buildings, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. So this indicator suggests the drag from CRE investment will end mid-year or so.

by Calculated Risk on 1/18/2011 09:05:00 PM

The following graph shows the rolling 12 month average of loaded inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container). Although containers tell us nothing about value, container traffic does give us an idea of the volume of goods being exported and imported - and possible hints about the trade report for December. LA area ports handle about 40% of the nation's container port traffic.

Click on graph for larger image in new window.

Since there is a strong seasonal component for inbound traffic, this graph shows the rolling 12 month average.

On a rolling 12 month basis, inbound traffic is up 17% and outbound up 13%.

The 2nd graph is the monthly data (with strong seasonal pattern).

For the month of December, loaded inbound traffic was up 7.8% compared to December 2009, and loaded outbound traffic was up 9.3% compared to December 2009. This suggests that the trade deficit with China (and other Asian countries) might have declined somewhat in December (seasonally adjusted).

For outbound traffic, 2010 was the 2nd highest year ever behind 2008. For inbound traffic, 2010 was the 5th highest behind 2005 through 2008.

by Calculated Risk on 1/18/2011 06:52:00 PM

Earlier the National Association of Home Builders (NAHB) reported the housing market index (HMI) was unchanged at 16 in January. Here is the graph ...

Click on graph for larger image in new window.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the January release for the HMI and the November data for starts (December housing starts will be released tomorrow).

This shows that the HMI and single family starts mostly move in the same direction although there is plenty of noise month-to-month. The HMI has mostly moved sideways - with some minor ups and downs - for over 2 years now at a very depressed level.

by Calculated Risk on 1/18/2011 03:15:00 PM

A few random thoughts from the apartment conference ..

• Rent growth is mostly from reduction in concessions. Not as much top line growth.

• Austin: rents are up 13%, but there is huge building boom (seems like every builder is planning or already started a project in Austin, so people are talking about the coming flood of supply)

• CAP rates look a little like a bubble ... people are buying the low 5s in some areas. There is plenty of capital flowing into multi-family.

• Greg Mutz (CEO AMLI Residential Properties) joked "Consensus has a high price"!

• Investment money is flowing into the sector.

• On submarkets: Las Vegas, Phoenix, Inland Empire, parts of Florida, Altanta were all named as disappointing.

• Everyone likes Boston, Seattle, Austin (although afraid of the coming supply) LA, Orange County ...

• Almost all areas are showing improvement.

• Several people have noted that turnover is at record lows (people aren't moving for jobs). Some people are concerned that as the economy improves turnover will increase again - and that eventually some people will choose to own.

• 2010 was beyond all expectations, and that is part of the reason for the optimism. The low level of completions in 2011 suggests the markets will be even tighter.

• Walt Smith, CEO Riverstone Residential (manages 162,000 units) said it is "Pedal to the metal" on rents.

For more, please see the previous post.

by Calculated Risk on 1/18/2011 12:44:00 PM

I am attending the NMHC Apartment Strategies Conference in Palm Springs today.

The first session asked: Is the recovery real for apartments? I'll have more later, but just a few quick notes ...

The overwhelming sense from participants is "YES" the apartment recovery is real. One data point - There are a record number of attendees this year.

The expectations are for a record low supply completed this year (as Tom Lawler and I have noted before). Some pickup in completions next year (2012), and then plenty of completions in 2013. The starts will probably pickup later this year, although I'll know more at a later session. The pickup in starts will help both GDP and employment growth this year.

The expectations are for strong rent growth over the next two years (around 5% per year) for large upper tier apartments. This will keep the vacancy rate from falling too much as owners trade off rent increases for occupancy.

Apartment market has bifurcated. Upper half of apartments are improving, regardless of geography. Lower half are struggling.

In 2010 most new households selected renting as opposed to owning. The feeling is this will continue for at least a couple more years.

I'll have more later ...

by Calculated Risk on 1/18/2011 10:00:00 AM

The National Association of Home Builders (NAHB) reports the housing market index (HMI) was unchanged at 16 in January. The consensus was for a reading of 17. Confidence remains very low ... any number under 50 indicates that more builders view sales conditions as poor than good.

Note: I'm attending the NMHC apartment conference in Palm Springs today - I'll post the graph tonight. Here is the graph from last month (Nothing has changed!)

Press release from the NAHB: Builder Confidence Remains Unchanged In January

Builder confidence in the market for newly built, single-family homes held unchanged at a relatively low level of 16 for a third consecutive month in January, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.
...
"The HMI and its subcomponent indexes are holding steady following a below-expectations finish in 2010," noted NAHB Chief Economist David Crowe. "At this point, housing remains on the sidelines of a weak economic recovery as consumers and builders wait for clear and consistent indications that jobs and economic output are reviving."
...
While the HMI components gauging current sales conditions and sales expectations for the next six months both held steady from the previous month, at 16 and 25, respectively, the component gauging traffic of prospective buyers edged up a single point to 12 in January.

HMI scores rose by one point in the Midwest and four points in the West in January, to 14 and 15, respectively. Meanwhile, HMI scores fell two points in the Northeast and one point in the South, to 20 and 17, respectively.