Norada Real Estate Investments

National Economic Outlook (September 2011)

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Read the newspapers and we're at the brink: Global Gloom, Deepening Pessimism, Markets Drop Sharply. Is another Great Depression just around the corner? Is the US slumping to a decade of stagnation a la Japan? Is China now eating the lunch we thought we had bought cheap? Is our financial system just a Vegas vacation, making the house rich but producing no growth?

The answer is no, even though China is nibbling at that burrito and bankers are at the slots. The hero coming to the rescue of the US economy is that trusty favorite, the US Consumer. It's a Consumer with flaws, like any modern hero, with a tendency to binge, and again wielding the weapon that often leads to trouble: the Credit Card.

After 28 straight months of pulling back on the reins, consumers have finally found a level of debt that feels good enough to allow more spending to flow. During those 28 months, the level of consumer debt per person [let's leave mortgages out of this] fell 13 percent, from $8,600 to $7,500. During the last recession with a real estate crash, 20 years ago, consumer debt dropped 14 percent. Sure, many things are different now, but some things aren't.

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U.S. Housing Market Intelligence Report (August 2011)

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Categories are graded from A thru F:

Economic Growth: C- (June 2011: D+)
The U.S. economic recovery remains sluggish. Real GDP grew at a 1.3% pace in 2Q11, following downwardly revised growth of 0.4% in 1Q11; far below the 1.9% rate of expansion previously estimated for last quarter. We now have positive Y/Y employment growth for eleven consecutive months, with payrolls expanding by 117,000 in July, up from 46,000 in June, and the unemployment rate dropping from 9.2% to 9.1%. Initial jobless claims fell to 400,000 in July. Government payrolls decreased by 37,000 in July, the ninth straight sequential drop.

The average length of unemployment increased to 40.4 weeks (new record high), and the labor force percentage of those unemployed over 27 weeks dipped slightly from 4.1% to 4.0%. On a positive note, retail sales continue to improve, with Y/Y growth at 8.5%.

Leading Indicators: C- (June 2011: C)
Leading indicators for the economy are mixed this month, with our overall grade for this subsection of indicators dropping from a C in June to C- in July. Many of the leading indicators we analyze have been trending down over the past several months, returning to levels not seen since mid-2009, a time when the U.S. economy was still in the midst of the Great Recession. For example, the ISM Purchasing Managers Index has fallen two consecutive months, dropping to 50.9 (just above the expansion threshold value), a level not seen since July 2009. In addition, the Vistage CEO Confidence Index fell in 2Q11, crossing into negative Y/Y territory for the first time since 2Q09. Corporate profit growth was revised down from last quarter, rising at an 8.8% Y/Y clip in 1Q11, the weakest annual growth rate since Q309. Other leading indicators such as the ECRI Leading Index were relatively flat versus last month.

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Next 2 Years is Prime Time for Real Estate Investors

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Real estate investors are likely to be three times more active than other types of home-buyers in their local markets within the next two years, according to a national survey by Realtor.com operator Move Inc.

Market research firm GfK Custom Research North America conducted the survey on behalf of Move from April 11-15, 2011. The survey included telephone interviews of 1,200 U.S. adults, of which about 200 were identified as real estate investors.  Data was weighted by age, sex, education, race and geographic region.

A third of real estate investors are planning to buy in the next 24 months, compared to 8.6% of typical home-buyers — those planning to purchase a primary residence, vacation home or retirement property.  Another 9.1% of typical home-buyers, and 28% of investors, plan to purchase between two and five years from now.

Among the investors, half plan to hold their properties for five or more years while 11% expect to sell within a year of purchase, according to the survey.

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National Economic Outlook (August 2011)

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Jobs, jobs, jobs! That's what we'll hear from now on through the 2012 election, and rightly so. Although they claim otherwise, Wall Street and the Big Banks are not the essential, indispensable, must-be-bailed-out part of the national economy: it's people with jobs.  Those people account for 70 percent of the economy (the government is 20 percent).

As we've already seen, those people aren't spending very much money these days, needing no more time-share condos, full-size SUVs, leather furniture, and flat-screen TVs. Which means there are fewer jobs for the people who were making those things a few years ago.

The national economy grew at a modest annual rate of 1.3 percent in the second quarter of this year, better than the 0.4 percent of the first quarter, but there is some cause for anxiety: personal spending was flat in the second quarter, after growing between 2 and 3 percent in 2010.

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National Economic Outlook (June 2011)

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With presidential elections coming up next year, and Osama Bin Laden now dead, we're going to be hearing a lot of political talk about the old Bill Clinton mantra,“It's the economy, stupid.” So, let's look at the basics.

“The economy” means jobs. From the high point of the expansion that ended in 2007, to the low point of the recession in early 2010, the economy lost about 9 million jobs. Almost 2 million of those jobs have been recovered and the economy is adding new ones at a rate of 1.5 million a year, but even if this rate improves, that's only another 2 million before election time, still leaving us down 5 million jobs from where we were.

The culprit, of course, is ourselves. Instead of freely spending money like we did, we've been putting it in the bank, an extra $400 billion a year. That equals a lot of jobs, even if some of them are in China. In the long run this is a good thing because we had gone over our eyeballs in debt, but in the short run it means the economy will grow only slowly.

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Fed Set to Hold Rates Low as US Economy Struggles

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The US Federal Reserve is expected to keep US interest rates at historic lows when it meets later Wednesday, as it tries to keep a languishing recovery on track. The Fed's top rate-setting body is widely expected to keep its main rate of borrowing at between zero and 0.25 percent to help spur economic growth.

Faced with reams of data showing the recovery is still fragile, the debate over whether the Fed should quickly raise rates to stave off inflation has all but disappeared in recent months. The Fed's announcement will still be keenly watched as investors look for any hint that a double-dip recession is on the way, or that the worst of the danger has passed.

Jobs growth remains anemic with employers still reluctant to add permanent positions during the fragile recovery. The unemployment rate is expected to hover near 10 percent for quite some time as the economy regroups after the worst downturn since the Great Depression of the 1930s Consumers have been cautious about spending, which normally drives about two-thirds of the activity in the world's largest economy.

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U.S. Housing Market Intelligence Report (April 2010)

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Categories are graded from A thru F:

Economic Growth:  D+
Spending remains high and income improved, but the unemployment level remains very high. Overall economic growth improved slightly this month, and the results for our economic growth metrics were generally positive. The revised fourth quarter GDP growth rate increased to 5.6%. The pace of job losses eased this month, and the number of mass layoff events is plummeting, but employment has still declined 1.7% year over year.

The unemployment rate was flat this month at 9.7%, but the broader measure of unemployment, the U-6, increased to 16.9%. The length of unemployment in the labor force increased to 31.2 weeks this month, reaching a record high level since the BLS began tracking the statistic in 1948. Personal income improved and has returned to positive year-over-year growth for the second time since December 2008, increasing by 2.0%. The CPI (all items) increased to 2.3% from one year ago, while the Core CPI (minus food and energy) dropped to 1.1%.

Leading Indicators:  C+

Overall leading indicators held relatively steady this month, but several individual metrics actually improved. The Leading Economic Index has increased for the past eleven consecutive months. The ECRI Leading Index – an indicator of future U.S. growth – increased 13.9% year-over-year, and has experienced positive year-over-year growth for the past 10 months. Stocks improved once again in March, and all four major indices have now experienced large positive year-over-year growth, ranging from +43% to +57%.

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U.S. Housing Market Intelligence Report (March 2010)

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Categories are graded from A thru F:

Economic Growth: D+
Overall economic growth was about the same this month compared to last, and the results for our economic growth metrics were mixed. The revised fourth quarter GDP growth rate increased to 5.9% from the preliminary estimate of 5.7%. Much of the growth was still the result of recent government stimulus and an increase in inventories. The pace of job losses also eased this month, although in the last 12 months the U.S. has lost 3.24 million jobs, which is equal to a decline of 2.5% of the total payroll workforce. The unemployment rate remained flat this month at 9.7%, while the broader measure of unemployment, the U-6, increased to 16.8%. The length of unemployment in the labor force declined slightly to just under 30 weeks this month, yet remains the second highest month on record since the BLS began tracking the statistic in 1948. Personal income improved in January and has returned to positive year-over-year growth for the first time since December 2008, increasing by 1.1%. The CPI (all items) decreased to 2.6% from one year ago, while the Core CPI (minus food and energy) also dropped to 1.6%.

Leading Indicators: C
Overall leading indicators held relatively steady this month, but several individual metrics actually improved. The Leading Economic Index 6-month growth rate declined in January to 9.8% from 12.2% last month, and remains very high compared to history. The ECRI Leading Index – an indicator of future U.S. growth – increased in January to its highest level since May 2008. The index increased 21.5% year-over-year, and has experienced positive year-over-year growth for the past 8 months. Stocks improved in February after declining in January, and all four major indices have now experienced large positive year-over-year growth, ranging from +46% to +62%. The S&P Homebuilding Index also improved this month. The spread between corporate bonds and the 10-year treasury fell in January, declining to 160 bps after peaking at nearly 270 bps in March. Since the 10-year treasury is seen as a risk-free investment, the spread between corporate bonds and the 10-year treasury displays the perceived risk of investing in corporate bonds, which has declined recently as Wall Street has become less worried about businesses failing. According to the 4th quarter CEO Confidence Index, CEOs are now much more confident about the economy. Despite the increase, the outlook index remains lower than earlier this decade. Business credit availability remains very poor, but deteriorated at a slower rate in the first quarter of 2010.

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U.S. Housing Market Intelligence Report (December 2009)

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Categories are graded from A thru F:

Economic Growth: D
The economy remains weak and although some indicators have improved compared to last month, they are improving from very low numbers. The third quarter GDP growth rate was revised downward to +2.8% from the preliminary report of +3.5%. Despite the downward revision, it still marks a great improvement from the second-quarter, and is the first quarterly increase in four quarters.

Job losses have eased slightly compared to last month, yet remain awful compared to history. In the last 12 months the U.S. has lost nearly 4.7 million jobs, which is equal to a decline of 3.4% of the total payroll workforce – representing one of the largest declines in 60 years. The headline unemployment rate surprisingly declined this month, reaching 10.0% in November, down from 10.2% in October.

The U-6, a broader measure of unemployment that covers part-time workers who would like full-time work and those who have given up looking for work, also decreased to 17.2% in November, down from 17.5% in October. Mass layoff events – defined as a cut of 50 or more jobs from a single employer – eased once again in October to 2,127, and marks the first year-over-year decline since August 2007, representing a 3.5% drop compared to last year.

The length of time required to find employment continues to increase, with job seekers taking over twice the normal length of time to find employment. The November CPI (all items) rose to 1.8% from one year ago, while the Core CPI (minus food & energy) remained flat at 1.7%.

Leading Indicators: C-
The U.S. leading indicators took a leg down this month after a run of steady improvements in recent months. In October, the Leading Economic Index 6-month growth rate declined to 10.2%, yet remains one of the largest year-over-year growth rates on record since 1983. Although the ECRI Leading Index, which is a gauge of future economic growth, also declined to 23% since one year ago, it still represents one of the largest growth rates since ECRI began tracking the statistic in 1968.

Stocks continued to perform well throughout November. All four major indices we track have now posted positive year-over-year results, ranging from +17% to +40%, compared to one year ago. The S&P Homebuilding Index inched up in November and has shown a year-over-year improvement for the second time since April 2006. The spread between corporate bonds and the 10-year treasury increased slightly in November, reaching 177 bps. Since the 10-year treasury is seen as a risk free investment, the spread between corporate bonds and the 10-year treasury displays the perceived risk of investing in corporate bonds, which has declined recently as Wall Street has become less worried about businesses failing. CEOs are now much more confident about the economy, according to the CEO Confidence Index.

Affordability: C-
Affordability improved once again this month as home prices and mortgage rates continued to decline. Our housing-cost-to-income ratio has fallen to 26.1%, which is near the lowest level since data for the index began in 1981. Homeownership costs have fallen drastically in the past year, and now owning the median-priced home is just $54 more expensive than renting the average apartment – and in many parts of the country homeownership costs much less. Due to large job losses and government furloughs, household income has fallen 4% year-over-year to $53,293. Despite the decline in incomes, the median-home-price-to-income ratio remains below the historical average, currently at 3.2. The 30-year fixed mortgage rate continued to decline, reaching 4.78% by November month-end, while adjustable mortgage rates fell to 4.35%. The Fed’s overnight lending target rate remains at a range of 0.00% to 0.25%, which is the lowest level on record. The share of ARM applications declined to 4.8% in the last week of November which is a significantly smaller share than the peak level of 35% of total applications in early 2005.

Consumer Behavior: D-
In general, consumer behavior declined compared to last month. Consumer confidence experienced a negligible uptick compared to last month, reaching 49.5, and remains very low compared to history. Consumer sentiment declined in November to 67.4 and also remains well below the historical average. The Consumer Comfort Index increased slightly in November to a monthly average of -46.4. The personal savings rate fell to 4.4%, which is down from a recent peak in May of 6.9%. The U.S. net worth increased nearly $2.7 trillion dollars in the third quarter from the prior quarter. Despite the recent quarterly improvement, the decline year-over-year of $3.4 trillion remains one of the largest on record. The Misery Index – which is based on the unemployment rate and inflation – increased this month.

Existing Home Market: C-
The change from last month in the existing home market was mixed. According to the National Association of Realtors (NAR), seasonally adjusted annual resale activity continued to experience large gains in October, rising to 6.1 million home sales, and improving 10% from last month. The 12-month rolling count of resale sales activity has also improved for four consecutive months. Resale sales have experienced an increase due to the $8,000 federal tax credit that was set to expire November 30th, before it got extended to Spring 2010. The national median price of an existing single-family home fell to $173,100 in October from $175,900 in September, and has fallen 7% year-over-year. The pace of decline in the Case-Shiller national index, which tracks paired sales, improved drastically in the third quarter, and marks only the second time in over three years that the index decline eased. Although the Case-Shiller national index remains down nearly 9% year-over-year, it is a sharp improvement from 19% decline reported in the first quarter. The monthly 10-market and 20-market Case-Shiller indices also remain down year-over-year, yet have experienced month-over-month improvements since May, and the annual declines have eased in recent months. The number of unsold homes declined again in October, and fell to 7.0 months of supply, reaching very close to the historical average. In October, pending home sales volume improved again, increasing almost 32% year-over-year. As of the third quarter, 23% of all homes with a mortgage throughout the U.S. were worth less than the original value of the mortgage.

New Home Market: D
The new home market was mixed this month. Builder confidence declined in December as the Housing Market Index fell to 16. The seasonally adjusted new home sales volume increased in October compared to September, reaching 430,000 transactions – up 5.1% year-over-year. The median single-family new home price increased to $212,200 in October, but has declined 0.5% year-over-year. The inventory of unsold homes fell to 6.7 months, down from 7.4 months last month, and is a large improvement compared to 12.5 months of supply in the beginning of 2009.

Repairs and Remodeling: D-
The conditions for repairs and remodeling remain poor this month. Homeowner improvement activity worsened in the third quarter, representing a decline of 9.4% year-over-year. The Remodeling Market Index improved to 39.8 in the third quarter, and has rapidly rebounded after bottoming in the fourth quarter of 2008. Despite the recent increases, the index remains well below the historical average of 50. The decline in residential construction eased slightly in October, although it has fallen 24% year-over-year.

Housing Supply: F
Housing supply worsened this month. Total completions improved 9% compared to the prior month, reaching 810,000, although they have fallen 25% year-over-year. Seasonally adjusted new home starts increased this month, as single-family starts rose 2% and multifamily starts improved 67% compared to last month. Seasonally adjusted total permits also increased in November to 584,000 units. Total permit activity has fallen 7% year-over-year and over 74% since its most recent peak in September 2005. Although vacancy rates in the U.S. have improved in recent quarters, the majority of the U.S. remains oversupplied compared to history. Just four states in the U.S. are currently undersupplied – Texas, Louisiana, West Virginia and Iowa.

* US Building Market Intelligence™ report is produced by John Burns Real Estate Consulting.

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