January 31, 2010

Case Shiller And Housing Markets

Its A Mixed Bag

There is an across the board improvement in home prices if you look at 2009 compared to 2008. But as you drill down, the latest Case Shiller reports show only five markets saw price increases in November vs October and four markets, Charlotte, Vegas, Seattle and Tampa posted new four year lows. Standard & Poors notes that any gains they might have seen in recent months have been erased.

To add more mixed signals, we are in a seasonally weak period for home prices, so the seasonally-adjusted data are generally more positive, with 14 of the markets and both composites showing improved prices in November. On balance, home prices are far more stable than they were a year ago but its not yet a sustainable, broad-based recovery.

Whats Holding Us Back
The Usual Suspects

Barry Sternlicht, chairman and CEO of U.S.-based Starwood Capital noted that no net new debt has been created by banks in real estate. Instead, banks are merely rolling over existing debt and buying debt from other failed banks in transactions where they had some exposure as participants. Banks are not lending; if they say they are lending, it's not true. The capital environment is different, and worse, he added, noting that much of the current investment activity is being powered by government spending and not private money. (Via Knowledge @ The Wharton School of Business)

The worst year of job losses since the Great Depression ended with a loss 85,000 jobs. The unemployment rate stood at 10%, but actually might be higher because it doesnt count workers that quit trying to find work and dropped out of the labor force. There are promising signs though. In the first quarter of last year, we were losing an average of 691,000 jobs a month. That number has fallen dramatically in the fourth quarter.

Commercial Real Estate
According to REIS Media, we have close to $3.5 trillion of loans outstanding and at least 12 to 24 more months of rent declines, I expect to see more commercial properties defaulting on loans. One very big reason, banks are not taking on any new risks unless they have to.

Last week, Tishman Speyer BlackRock, one of the largest commercial property owners sent their $5.3 billion investment in 11,000 apartments in New York back to their bankers. Both Stuyvesant Town and Peter Cooper Village on Manhattans lower east side were solid middle class properties. The key driver was loans made to developers between 2005 and 2007 assumed ever rising rents and low vacancy rates. Speculators acted on rosy projections will drive many properties back to the bank as the better business decision.

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