Posts Tagged ‘recession’
Thursday, May 12th, 2011
New home sales rose in March, with the number of properties on the market at its lowest since the 1960s. Additional gains will be stymied by competition from the market’s glut of previously owned houses. Single-family home sales rose 11.1 percent to a seasonally adjusted 300,000 unit annual rate, according to the Department of Commerce, during a month when economists had expected a 280,000-unit pace. Even with the March uptick, new home sales are just bouncing along the bottom. Despite the good news, the number of houses sold still is 21.88 percent less than the level achieved one year ago. The news was released by the U.S. Census in its monthly New Residential Home Sales Report for March.
“Investors continue to drive the market and were about 22 percent of the purchasers in March, up from 19 percent a year ago,” said economist Joel Naroff, of Naroff Economic Advisors, in Holland, PA. Investors typically look for foreclosures or short sales. “They love those cheap distressed homes, which now make up 40 percent of the market,” Naroff said. “Given the tight lending standards cash buyers are more than welcome. To get a Fannie or Freddie loan, which are the only games in town, a borrower has to have a credit score of about 760. Before anyone gets excited and thinks housing is on the rebound, understand that we need to more than double the March sales pace to reach decent sales levels,” Naroff said. “Prices remain soft and are down by about five percent over the year.”
According to Dirk van Dijk of the Wall Street Pit, “The March level was substantially better than the expected rate of 280,000. The 11 lowest months on record (back to 1963) for new home sales have all been in the last 11 months. We are down sharply from a year ago, and it is not like a year ago was a great time in the homebuilding industry either. Relative to the peak of the housing bubble (July ’05, 1.389 million) new home sales are down 78.4 percent. Inventories of new homes were down 1.1 percent on the month and are down 19.7 percent from a year ago. Supply is at 7.3 months, down from 8.0 months in February, but up from 7.1 months a year ago. While that is well off the peak of 12.0 months, it is still above normal. A healthy market has about a six month supply of new houses and during the bubble, four months was the norm.”
The median price of new houses sold in March was $213,800, according to the Census Bureau. “It’s a decent start to the spring selling season, but we’re coming off all-time lows here, so we’re not going to get too excited,” said Brett Ryan, economist with Deutsche Bank Securities. “The overhang of foreclosures drags on new home sales. Builders are waiting for a clearing process to take place.”
The housing market was either “little changed from low levels” or weaker across the country, the Federal Reserve said in its most recent Beige Book report. The absence of a continued housing rebound is one of the reasons why policymakers will complete their $600 billion asset purchase plan and keep borrowing costs at nearly zero to encourage growth.
Last year was the fifth consecutive year of declining new-home sales. According to economists, it could take years before sales return to a healthy pace. Slow new-home sales add up to fewer jobs in construction, which normally powers economic recoveries following recessions. Each new home creates an average of three jobs for a year and adds $90,000 to the local tax base, according to the National Association of Home Builders.
Tags: Beige Book, Credit scores, Department of Commerce, Deutsche Bank Securities, economic recovery, Fannie Mae, Federal Reserve, foreclosures, Freddie Mac, Housing bubble, National Association of Home Builders, New home sales, New Residential Home Sales Report for March, Previously owned homes, recession, short sales, U.S. Census Department
Posted in Economics, General, Residential | No Comments »
Wednesday, March 30th, 2011
The Federal Reserve‘s second round of stress tests requires the 19 largest U.S. banks to examine their capital levels against a worst-possible-case scenario of another recession with the unemployment rate hovering above 8.9 percent. The banks were instructed to test how their loans, securities, earnings, and capital performed when compared with at least three possible economic outcomes as part of a broad capital-planning exercise. The banks, including some seeking to increase dividends cut during the financial crisis, submitted their plans in January. The Fed will complete its review in March.
“They’re essentially saying, ‘Before you start returning capital to shareholders, let’s make sure banks’ capital bases are strong enough to withstand a double-dip scenario,’” said Jonathan Hatcher, a credit strategist at New York-based Jefferies Group Inc. Regulators don’t want to see banks “come crawling back for help later,” he said.
The review “allows our supervisors to compare the progress made by each firm in developing a rigorous internal analysis of its capital needs, with its own idiosyncratic characteristics and risks, as well as to see how the firms would fare under a standardized adverse scenario developed by our economists,” Fed Governor Daniel Tarullo said. Although Fed policymakers aren’t predicting another slump any time soon, they want banks to be prepared for one. In January, the Federal Open Market Committee forecast a growth rate of 3.4 percent or more annually over the next three years, with the jobless rate falling to between 6.8 percent and 7.2 percent by the 4th quarter of 2013. Unemployment averaged 9.6 percent in the 4th quarter of 2010.
The new round of stress tests are being overseen by a financial-risk unit known as the Large Institution Supervision Coordinating Committee (LISCC). The unit relies on the Fed’s economists, quantitative researchers, regulatory experts and forecasters and examines risks across the financial system. Last year, the LISCC helped Ben Bernanke respond to an emerging liquidity crisis faced by European banks. “The current review of firms’ capital plans is another step forward in our approach to supervision of the largest banking organizations,” Tarullo said. “It has also served as an occasion for discussion in the LISCC of the overall state of the industry and key issues faced by banking organizations.”
At the same time, Bernanke expressed his support for the Dodd-Frank Act, which will add new layers of regulation to the financial services industry, as well as the Consumer Protection Act. “Dodd-Frank is a major step forward for financial regulation in the United States,” Bernanke said, noting that the Fed is moving swiftly to implement its provisions. Additionally, the Fed wants banks to think about how the Dodd-Frank Act might affect earnings, and how they will meet stricter international capital guidelines. Banks will have to determine how many faulty mortgages investors may ask them to take back into their portfolios. Standard & Poor’s estimates that mortgage buybacks could carry a $60 billion bill to be paid by the banking industry.
In the meantime, the big banks are feeling adequately cash rich to pay dividends to their stockholders. Bank of America’s CEO Brian T. Moynihan said that he expects to “modestly increase” dividends in the 2nd half of 2011. “We’d love to raise the dividend,” James Rohr, CEO of PNC, said. “We’re hopeful of hearing back in March from the regulators.” JPMorgan CFO Douglas Braunstein told investors that the bank asked regulators for permission to increase the dividend to 30 percent of normalized earnings over time. Braunstein said that JPMorgan’s own stress scenario was more severe than the Fed’s, and assumed that the GDP fell more than four percent through the 3rd quarter of this year with unemployment peaking at 11.7 percent.
Clive Crook, a senior editor of The Atlantic, a columnist for National Journal, and a commentator for the Financial Times, believes that United States fiscal policy itself merits examination. Writing in The Atlantic, Crook says that “Fiscal policy needs a hypothetical stress test, just like bank capital. Let’s be optimistic and suppose that the deficit projections do hold, and that a debt ratio of 80 percent can be comfortably supported at full employment. What happens when we enter the next recession with debt at that level? Assume another really serious downturn, and another 30-odd percentage points of debt. Worried yet? That’s why the problem won’t wait another ten years, and why sort-of-stabilizing at 80 percent won’t do.”
Tags: Bank of America, Bank stress tests, Ben Bernanke, capital, Capital levels, Consumer Protection Act, Daniel Tarullo, Dividends, Dodd-Frank Act, Earnings, Federal Open Market Committee, Federal Reserve, financial crisis, financial reform, financial services, GDP, Inc., industry, Jeffries Group, JPMorgan Chase PNC Financial Services Group, Large Institution Supervision Coordinating Committee, loans, Mortgage buybacks, recession, Regulators, securities, Standard & Poor’s, Stockholders, unemployment, Wall Street reform
Posted in Economics, General | No Comments »
Monday, February 28th, 2011
Washington Post columnist E.J. Dionne says it best: “Mayor Rahm. It will be a hoot. It could even be good for Chicago. And in a way he has never had to do before, Rahm Emanuel will finally reveal who he really is. If he’s slick, it’s because he’s un-slick. All transactions with him are of the postmodern he-knows-that-you-know-and-you-know-that-he knows-you-know variety. He’s always operational, always trying to move the political needle. Even his well-known love for profanity has helped him build his brand.”
That said, the mayor-elect of Chicago is facing a mountain of problems, including high poverty levels in some neighborhoods; a budget crisis that could amount to a $1 billion hole; failing schools; a public transportation system in serious trouble; and a police force that is significantly understaffed. Additionally, Chicago’s business community and job-creation capacity were showing signs of distress even before the recession began; the 2010 Census shows that Chicago is losing residents; the costly parking meter fiasco has sparked strong reactions; and soaring property taxes remain unresolved. Lastly, long-term avoidance of resolving public-worker pension funds has put the city into a financial corner. In his victory speech in Chicago’s Plumbers Hall, Emanuel was optimistic about his ability to resolve the city’s problems. “I am determined, with your help, to meet our challenges head on and make our great city even greater,” he said.
Before Tuesday’s historic election to replace the retiring Mayor Richard M. Daley, Emanuel’s poll numbers showed him winning less than 50 percent, which would have necessitated a runoff election in early April. Instead, Emanuel won 55.2 percent of the Tuesday vote. Runner-up Gery Chico received 24 percent; Chicago City Clerk Miguel del Valle won nine percent; and former Senator Carol Moseley Braun won just under nine percent of the vote.
Emanuel’s ability to win 55 percent of the vote is impressive in its diversity; he won 40 of the city’s 50 wards and 48 percent of the black vote. “We have not won anything until a child can go to school and not think of their safety we have not won anything until a parent can think of their work, and not where they’re going to find work, we have not won anything,” Emanuel said in his victory speech. “The plural pronoun of ‘we’ is how we’re going to meet the challenges. I do not want to see another child’s name in memorial killed by violence.”
Of course, the media have started their prognostications for Mayor Rahm, even before he’s taken office. In the Chicago Sun-Times, City Hall reporter Fran Spielman writes that the enormity of problems facing Chicago could mean that he will only serve a single term as mayor. According to Spielman, “Rahm Emanuel’s Round One victory gives him a running start on confronting problems so severe, the painful solutions could seal his fate as a one-termer. Whether Emanuel can avoid a one-and-done scenario — assuming he even wants to serve more than four years — will largely depend on how he tackles the biggest financial crisis in Chicago history. The city is literally on the brink of bankruptcy with a structural deficit approaching $1 billion when under-funded employee pensions are factored in. Mayor Daley borrowed to the hilt, sold off revenue-generating assets and spent most of the money to hold the line on taxes in his last two budgets. The city even borrowed $254 million to cover back pay raises long anticipated for police officers and firefighters. There are no more easy answers. Only painful ones that will fundamentally alter services the city provides and further burden taxpayers already at the breaking point.”
Rahm Emanuel will be inaugurated as Chicago’s mayor on May 16. He has huge shoes to fill and a daunting task ahead. It is our belief that he is an extraordinarily seasoned politician and a sophisticated operator and a worthy successor to Mayor Daley. We wish him well.
Tags: 2010 Census, Carol Moseley Braun, Chicago, Chicago mayor election, Chicago Sun-Times, City Hall, E. J. Dionne, Fran Spielman, Gery Chico, Miguel del Valle, One-term mayor, Parking meter fiasco, Plumbers Hall, Police, Polls, President Barack Obama, Public worker pensions, Rahm Emmanuel, recession, Richard M. Daley, Runoff election, schools, Washington Post, White House Chief of Staff
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Tuesday, February 8th, 2011
New-home construction fell 4.3 percent in December compared with November to its lowest level in more than a year to a seasonally adjusted rate of 529,000 starts for 2010. December saw the lowest level of new home starts since October of 2009, according to Department of Commerce statistics. Starts ended the year 8.2 percent below December of 2009 and the chance that the numbers will rise anytime soon is highly unlikely.
December’s poor showing reflects a decline in single-family housing starts, which comprise the lion’s share of new residential construction, with construction falling nine percent to 417,000 units, the lowest level since May of 2009. Demand for new housing is a victim of the recession and the large supply of existing homes on the market. The high number of foreclosures also has impacted new residential construction. Stricter lending standards and the fear of unemployment are also slowing new home sales. Sales were boosted for a time last year when the federal government offered a first-time homebuyer tax credit. Once that incentive expired, sales declined.
Another reason behind the slow pace of new home sales is likely the surplus of foreclosed homes that are on the market at extremely attractive prices. Prices in 20 major metropolitan areas declined during the same time period, according to the Standard & Poor’s Case-Shiller Home Price Index. The index is only 3.3 percent above its nadir, which it reached in April 2009 and has fallen 1.6 percent from a year ago. There are several areas, however, where prices have stabilized and are not reflected in the Case-Schiller Index.
The slowdown in new home construction also raises the issue of what is happening to the acres of developed land that are shovel-ready? In some cases, new builders are buying the vacant lots from banks and developing lower-cost housing than the original concept. Builders are buying lots at 50 percent their original prices from lenders who want to move distressed construction loans off their books. Developments are being revived in markets such as Florida, California, Las Vegas, Utah and the suburbs of Washington, D.C., according to Brad Hunter, chief economist for Metrostudy, a Houston-based housing researcher. “This is a natural progression of the cycle,” Hunter said. “Projects fail, the price of the asset drops until it reaches a point where it’s profitable for someone else to pick it up and remarket it. They reposition the project and then what was formerly infeasible, is feasible.”
Developers are building smaller, more efficient homes that cost less to build, according to Tom Dallape, principal at the Hoffman Company, an Irvine, CA-based brokerage advisory company. “They’re tailoring them to the market,” he said. “The average new house used to be 3,000 square feet. Today, it’s 2,100.”
In another example, a homebuilder sold 1,300 acres of land and more than 1,500 homes sites — property once valued at $110 million for just $12.7 million. That amounts to just 12 cents on the dollar and is symptomatic of the level of financial pain banks must endure to stabilize themselves in a insecure economy.
Tags: Building permits, Construction industry, Department of Commerce, Existing homes, First-time homebuyer tax credit, foreclosures, Lending standards, Metrostudy, New home construction, recession, recovery, Single-family houses, Standard & Poor’s Case-Shiller Home Price Index, unemployment, Wells Fargo Securities
Posted in Development, General, Residential | No Comments »
Monday, January 31st, 2011
Rising gas prices and the dearth of jobs are negatively impacting consumer confidence and bringing the first hint of inflation in a long time. The Consumer Price Index (CPI) showed an increase of 0.5 percent in December, primarily a result of skyrocketing gas costs, according to the Department of Labor. The AAA reports that the average price of a gallon of gas has soared to $3.10 nationally, the highest since October of 2008. According to a Thomson Reuters/University of Michigan study, the preliminary index of consumer sentiment for January fell to 72.7, the lowest reading since November. The number had risen to 74.5 in December and was expected to rise to 75.5 for January, according to Bloomberg News.
Quicker job growth likely will be required to accelerate improved consumer spending, even as Americans are experiencing sticker shock every time they buy gas. Unfortunately, hiring has been anemic at best, spurring Federal Reserve policymakers to expand their efforts to jump start the economy. The lack of optimism “reflects a frustration with the lack of labor market progress,” said David Semmens, an economist with Standard Chartered Bank. “Until employers start hiring aggressively enough to bring down unemployment, improvements in consumer sentiment will be slow.” According to the Federal Reserve, industrial production rose in December, advanced by gains in business equipment and home electronics. Factory, mine and utility output also rose 0.8 percent during the same timeframe, the most significant increase in five months.
Other data from the Department of Commerce showed a 6.7 percent increase in retail sales in December of 2010, the largest jump since the same month of 1999. The big winner in the retail arena was tony Tiffany & Co., which reported that November-December sales rose by an impressive 11 percent.
Tags: AAA, Ben Bernanke, Big-ticket items, Bloomberg News, Christmas, consumer price index, Department of Commerce, Department of Labor, Federal Reserve, Gas prices, jobs, MasterCard Advisors’ SpendingPulses, recession, Standard & Poor’s 500 Index, Standard Chartered Bank, Thomson Reuters/University of Michigan preliminary index of consumer sentiment, Tiffany & Co., Treasury securities, U.S. consumers
Posted in Economics, General | No Comments »
Wednesday, December 22nd, 2010
With the U.S. unemployment rate rising to 9.8 percent in November, the Department of Labor is concerned that economic recovery isn’t progressing as quickly as it would prefer. For the 19th consecutive month, unemployment has stayed above nine percent — the longest streak on record, beating out previous highs in the 1980s. Despite optimistic predictions that the nation would add 150,000 jobs in November, just 39,000 new jobs were added during the month, bringing unemployment up from 9.6 percent to 9.8 percent.
The Federal Reserve has decided to stay the course, saying the “economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment.” Worries about steady high unemployment were the main motivation behind the Fed’s decision to launch a second round of economic stimulus in November with a new bond-buying program. Progress on reducing unemployment has been “disappointingly slow,” according to the Fed.
The persistent level of high unemployment shows that many Americans are still suffering, even though the National Bureau of Economic Research says the recession officially ended in June 2009. The economy lost more than eight million jobs during the recession. “To anyone around the dinner table, it means little,” says Lawrence Mishel, president of the liberal Economic Policy Institute. “The fact is, unemployment is going to remain flat for a year.”
“With the jobless rate stuck at 9.8 percent, the economy needs all the help it can get,” said Sung Won Sohn, economist at California State University. Because nearly 40 percent of the unemployed have been jobless for more than six months, there is growing fear that the cause may be more profound than the deepest recession in more than 70 years.
Tags: Austan Goolsbee, Ben Bernanke, Bush-era tax cuts, California State University, congress, deficit, Department of Labor, Economic Policy Institute, economic stimulus, Eric Cantor, Federal Reserve, house of representatives, Incomes, National Bureau of Economic Research, President Barack Obama, recession, unemployment rate
Posted in Economics, General | No Comments »
Monday, June 28th, 2010
Two short words are being heard in offices that have been absent for some time. The words are: “I quit.” In the last three months, more Americans have quit their jobs than were laid off, a sharp contrast with the last few years that points to a gradually thawing jobs market. Although some of the quitters have accepted new jobs when they resign, others have no firm offers except for a new-found confidence that they will be able to find employment quickly. “There is a century’s worth of evidence that bears out this view that quits rise and layoffs fall as the job market improves,” said Steven Davis, a University of Chicago economist.
Long-term trends point to a job market that can only improve. Already this year, the economy has created a net 982,000 jobs following a recession that wiped out more than eight million jobs. According to the federal government, the number of people who quit their jobs in April rose to nearly two million, the most in more than a year and a 12 percent increase over January. Workers were afraid to quit during the darkest months of the recession, and with good reason. Jobs were in short supply; others feared facing layoff because of the “last hired, first fired” principle.
Fear kept many people in their jobs, according to David Adams, vice president of training at Adecco, a national staffing firm, who says that his firm had trouble recruiting people for open jobs during the recession. Now, Adams is seeing more people who have jobs looking to interview versus laid-off workers searching for employment. “The hangover is over. It’s really starting to move toward a market where the employee can have a lot more confidence making a move.”
Tags: Adecco, David Kahler, economists, economy, jobs market, layoffs, quitting jobs, recession, Steven Davis, University of Chicago
Posted in Economics | No Comments »
Wednesday, March 17th, 2010
A little-noticed bill was introduced in Congress in January that could bring a new source of liquidity to the commercial real estate sector – foreign investment. Legislation introduced by Congressman Joseph Crowley (D-NY) called the Real Estate Revitalization Act of 2010 would cut taxes that were introduced as part of the Foreign Investment Real Estate Property Tax of 1980 (FIRPTA). This required foreign investors to pay as much as 55 percent on capital gains from the sale of American real estate shares in REITS and other investment vehicles.
Crowley and the legislation’s other supporters believe that repealing FIRPTA could open the floodgates to needed liquidity at a time when commercial real estate loan defaults pose a risk to the nation’s recovery. According to the bill’s supporters, the FIRPTA tax penalizes foreign investors willing to infuse their cash into American real estate because they aren’t taxed similarly when they buy Treasury securities, corporate equities or corporate bonds.
Dan Fasulo, managing director of Real Capital Analytics, points out that foreign investors comprise only 10 percent of commercial real estate acquisitions in the United States. Fasulo notes that “Could (removing the tax) double the amount of investment activity in the U.S.? Sure.”
Crowley’s legislation has received little attention, although it has little vocal opposition, because it is being drowned out by Congress’ preoccupation with the healthcare reform debate. Peter Peyser, managing principal of the lobbying organization Blank Rome Government Relations LLC, believes the legislation will likely be attached to a larger bill to assure passage this year. “A small targeted provision like this one would need to be part of a larger package because it’s unlikely that something like this is going to gather enough steam to get through on its own.”
Tags: congress, Dan Fasulo, foreign investment, Joseph Crowley, Peter Peyser, Real Capital Analytics, Real Estate Revitalization Act, Real Estate Roundtable, recession, REITS
Posted in Development, Financing, Office | No Comments »
Monday, March 1st, 2010
Arizona, Georgia and Texas are the growth centers in terms of new residents in the last few years, according to an Associated Press analysis of Internal Revenue Service migration data. The IRS compared the states where taxpayers filed their returns from 2007 to 2008 to arrive at their conclusions.
Texas led the nation, with 62,827 new households; the largest number of families moved there from California and overseas. Georgia ranked second, with 37,559 new households, many of whom moved there primarily from Florida and New York. Arizona reported a net gain of 20,300 new households, with the majority relocating there from California and Michigan.
The IRS statistics indicate that Americans are not moving much at present, with the annual migration rate at 11.9 percent – the lowest number in decades. United States Census Bureau estimates released at the end of 2009 confirm the IRS numbers. According to the AP analysis, counties with better-educated taxpayers typically see the highest county-to-county migration gains.
“People who move tend to be younger and have lower incomes,” according to William Frey, a demographer with the Brookings Institution. “Normally, if there is a big influx of young people, that could pull down the income of an area; and if there is a big outflux of young people, that can raise income in an area.”
Tags: Arizona, Associated Press Economic Stress Index, bankruptcy, Brookings Institution, demographics, Georgia, Internal Revenue Service, Migration, recession, Texas, unemployment rate, United States Census Bureau
Posted in Development, Industrial, Office, Residential | No Comments »
Wednesday, February 24th, 2010
Commercial real estate will begin its long-awaited recovery in late 2011 or 2012, according to the fourth-quarter Korpacz Real Estate Investor Survey, which questioned more than 100 real estate investors, including REITs, pension funds, private equity firms and insurance and mortgage companies. Confirmation is provided by a PricewaterhouseCoopers survey, which notes that Washington policymakers are increasingly tweaking the strings that impact pricing.
According to the Korpacz survey, “Rental rates will continue to decline until strong, consistent job growth resumes. With $1.4 trillion of commercial real estate debt maturing by the end of 2012, some property owners will not be able to survive the downturn. Problems related to refinancing that debt could further delay a recovery in the sector.”
Government and regulatory policy will have greater impact on pricing than occupancy levels or rents, according to Real Capital Analytics, Inc. “Policymakers control what happens to commercial mortgages in default,” Robert White, the president of Real Capital Analytics, wrote in a report. They “have encouraged loan modifications and extensions even in cases where loans are above a property’s current value. Tax policy, meanwhile, has made it easier for special servicers to negotiate with borrowers, a move meant to prevent a wave of maturity defaults and property fire sales. Keep rates low and easing restrictions on foreign capital will also influence industry prospects.” Real Capital Analytics notes that commercial mortgage-backed securities (CMBS) hold 42 percent of distressed loans; American banks 31 percent; and foreign banks 13 percent.
Tags: CMBS, commercial real estate, Pricewaterhousecoopers, Real Capital Analytics Inc, recession, recovery
Posted in Development, Industrial, Office | No Comments »