Summary
The top 12 trends in this month’s Barometer point to prudent optimism on the economy, a better mix of signals in the capital markets, and a sustained spark in the weak housing market. Compared with a year ago, 65 percent of the key indicators in the Barometer are better and 33 percent are worse, and 2 percent remain the same.
Note: More commentary and data can be found throughout the tabs and in the accompanying tables.
In those top 12 trends:
- January’s private sector employment growth lived up to the most bullish expectations—coming in at 2.5 times the historical monthly average and more than sustaining December’s growth—and the high unemployment rate continued to edge down to levels not seen in almost three years. However, at January’s growth rate, it would take almost two years just to regain the 5.6 million jobs lost in the past four years, and improvement would depend not only on private sector job growth but also on a stemming of the loss of public sector jobs.
- Fourth-quarter 2011 GDP growth was the highest in six quarters and followed four quarters of increasingly higher growth rates. It is now the same as the long-term quarterly average rate of growth.
- Total construction value put in place increased in December to the highest monthly value in two years. Still, it is down one-third from the pre-recession high registered in March 2006.
- Consumer confidence fell in January after two months of significant jumps; it is now down 20 percent from four years ago; retail sales barely rose in December.
- NAREIT returns in January were up substantially in four sectors, down in the apartment sector.
- NCREIF returns were down slightly in all sectors for the fourth quarter but remained healthy.
- CMBS issuance in January plummeted, continuing the volatility of the past 12 months, while delinquency rates declined slightly.
- Commercial property prices continued to rise in November, according to the latest repeat-sales indices. Repeat-sales indices are off almost 30 percent from their pre-recession highs
- Commercial property transaction volumes spiked in December and volume is almost twice the long-term monthly average. The top five most active sales markets in the past 12 months, according to Real Capital Analytics, are Manhattan, Los Angeles, Chicago, Boston, and the Virginia suburbs of Washington, D.C.
- The new single-family home industry remains about the smallest it has been in over 40 years but permits and starts were up in December to 12- and 20-month highs, respectively. Prices declined in December to make 2011 the year with the biggest price drop in over 50 years. Prices are now 15 percent below their peak.
- Multifamily housing permits fell in December but in both November and December the two monthly volumes were their highest in 38 months. Total housing permits in 2011 were up 1.2 percent over 2010 and total starts in 2011 are up 3.4 percent over 2010.
- Total foreclosure filings are down to their lowest monthly levels in 49 months.
Economy
Excellent news in the economy came in three’s: Fourth-quarter GDP was the highest in six quarters, employment growth was strong in January for the second-straight month, and the unemployment rate fell to an almost three-year low. Private construction value was at a two-year high, although still low by historic standards. Consumer confidence fell and retail sales were weak. S&P returns were healthy for the month, but year-over-year returns remained anemic.
January’s net job growth of 243,000 jobs was encouraging as it more than sustained December’s gains of 203,000 jobs. January’s growth is above the historical average monthly growth (since 1970), but the country still has 5.6 million fewer jobs than it did four years ago. At January’s growth rate, it would take almost two years to regain just that number of jobs, and improvement would require not only private sector job growth but also a stemming of the loss of public sector jobs; this timeline does not address the additional employment needs of a growing population. Private sector job gains in January occurred in durable goods manufacturing, food services, health care, professional/technical services, and temporary help. Almost 80 percent of the decline in public sector employment took place at the local level, and almost all the local decline was in education. The overall unemployment rate fell from 8.5 percent in December to 8.3 percent in January, the lowest rate in 35 months.
The advance estimate of fourth-quarter 2011 GDP growth is 2.8 percent, the highest growth rate in six quarters. The GDP growth rate, which was almost flat in first-quarter 2011, increased steadily in all subsequent quarters and now is at the long-term quarterly average (since 1970). Factors contributing to the third-quarter growth were private inventory investment, personal consumption of nondurable goods, exports, residential fixed investment, and nonresidential fixed investment (primarily equipment and software). These were partially offset by declines in federal, state, and local government spending and a slowing in nonresidential fixed investment. Imports, which are a subtraction in the GDP, increased.
The Consumer Confidence Index fell by 5 percent in January to 61.1, breaking the two-month dramatic recovery from October’s 31-month low. It is now at a level seen toward the end of spring 2011. Still, it is off substantially from the January 2008 level of 87.3. Total retail sales in December were up a very weak 0.1 percent, a result of strong sales growth in automobile and building materials largely offset by sales declines in gasoline, general merchandise, and electronics and appliances. Retail sales volume—$400.6 billion—is 6.5 percent higher than one year ago but exceeds the pre-recession peak of $378.4 billion (in November 2007) by only 5.9 percent.
The value of total private construction put in place increased by 2 percent in December after a slight dip in November; December’s value was the highest monthly value in two years. Public construction put in place, which barely increased in December, is lower than any monthly value in 2010 and at about the monthly average for 2011. December’s total construction value of $816.4 ?? billion is down 33 percent from the pre-recession high in March 2006.
Inflation, as measured by the Consumer Price Index, was unchanged in December, as it was in November. For the past 12 months, the CPI has risen 3.0 percent.
December’s S&P 500 returns were healthy at 4.5 percent, a welcome relief after two fairly flat months; year-over-year returns improved over the previous month but remained weak at 4.2 percent.
Real Estate Capital Markets
Commercial transaction volumes spiked and both investment and general prices were up, as indicated by repeat-sales indices. NCREIF fourth-quarter returns were healthy in all sectors and NAREIT monthly returns were particularly strong in all sectors but apartments, which fell. CMBS issuance was weak, but delinquency rates inched down.
Capitalization rates, as reported by Real Capital Analytics, fell slightly from 7.05 percent in November to 7.03 in December. As reported by NCREIF, capitalization rates increased from 5.81 percent in the third quarter to 6.03 percent in the fourth quarter. Third-quarter cap rates had been at their lowest level since the third quarter of 2008.
Commercial property sales volumes
(excluding hotels) more than doubled to $27.4 billion in December from $11.3 billion in November, according to Real Capital Analytics, above the long-term monthly average (since 2001) and one of the highest monthly volumes in three years. The office sector was the most active, with 38 percent of the transaction volume, followed by apartments (29 percent), retail (19 percent), and industrial (14 percent).
The top ten most active sales markets in the past 12 months were, in descending order, Manhattan, Los Angeles, Chicago, Boston, the Virginia suburbs of Washington, D.C., Dallas, Houston, Atlanta, San Francisco, and San Diego, according to Real Capital Analytics. Over $5.35 billion in transactions have been recorded in each of these cities since January 1, 2011.
The Investment Grade Index of the CoStar Commercial Repeat-Sale Indices rose 2.2 percent in November, the third-straight month of growth. (These indices are based on a repeat-sales methodology that tracks transactions over $100,000 and includes land sales, with a two-month lag.) Values are down 29 percent from the peak value in June 2007 but up about 6 percent from a year ago. The General Grade Index of the CoStar Commercial Repeat-Sale Indices rose 0.3 percent, the seventh-straight month of growth; it is now down 32 percent from its peak value in August 2007 but up 1.1 percent from a year earlier.
(Note: The Moody’s/REAL Commercial Property Price Index, previously reported in Barometer, is no longer produced.)
The NCREIF Property Index turned in a positive fourth quarter, with total returns of 3.0 percent, sustaining the positive returns started in the first quarter of 2010. The capital appreciation component was 1.5 percent for the quarter. Total 12-month returns are now 14.3 percent. Total returns for the quarter by property sector range from 2.1 percent for the lodging/resorts sector to 3.5 percent for apartments.
Positive returns of 6.4 percent in the REIT sector in January were up from December’s strong returns of 4.8 percent. One-year returns are now at 10.6 percent. Total returns for the month by property sector range from 3.9 percent for the apartment sector to 10.9 percent for lodging/resorts.
CMBS issuance
fell from $2.66 billion in December to $1.30 billion in January, according to Commercial Mortgage Alert. CMBS delinquency rates, according to Trepp LLC, continued their slight fluctuations of the past three months, declining to 9.52 percent in January from 9.58 percent in December.
As reported in last month’s Barometer, bank real estate loan delinquency rates fell in the third quarter. Commercial and multifamily mortgage delinquency rates are 3.92 percent and 2.91 percent, respectively. Construction and development loans have the highest delinquency rate at 14.57 percent, substantially above the quarterly historical average (since 1991) of 5.0 percent.
Housing
Although activity in the multifamily industry remains extremely low by historical standards, permit activity is at levels not seen for several years. The single-family home industry remains about the smallest it has been in over 40 years, but permits and starts were up for the month; sales and prices of new single-family homes were down. Existing single-family home sales rose and were above their historical average, while the National Association of Realtors (NAR) Index of Pending Sales fell. The prices of existing homes rose in November, according to two sources that report nationwide activity, and declined according to a third source that reports on a group of the largest cities. The one data source for December, reporting on activity throughout the country, showed an increase in prices.
The S&P/Case-Shiller Index for existing home prices moved down 1.3 percent in November, the third-straight month of decline after five straight months of growth, bringing it to 33 percent below its peak in July 2006 and just 0.6 percent above its lowest level (in March 2011) since then. (This index, a composite of repeat transactions in 20 cities, is reported monthly as a three-month moving average, with a two-month lag.) The Federal Housing Finance Agency House Price Index (HPI), which has been undulating since March, rose 0.8 percent in November; it is down 19 percent from its peak in June 2007 and is 2.6 percent above its lowest level (in March 2011) since then. (The HPI covers repeat transactions in the entire country and is reported monthly with a two-month lag.) National Association of Realtors data (which report individual, unpaired transactions for the entire country) for December show a rise in prices of 0.7 percent. NAR’s November data showed an increase of 1.8 percent in the median price of existing single-family homes, the second-straight month of positive movement. Median prices for existing single-family homes stood at $165,100, 26 percent below the peak in 2006 and 5 percent above their lowest level (in February 2011) since then.
Median prices for new single-family homes slid 2.5 percent in December to $210,300, putting the yearly decline at almost 13 percent for 2011, the biggest annual decline since record keeping began in 1963. New home prices are now down 15 percent from the peak in 2007 and 3 percent above their lowest level (in October 2010) since then.
Single-family building permits were up 1.8 percent in December to 444,000, the highest monthly permit volume in 12 months. Still, November’s permit numbers are 75 percent below the pre-recession high in September 2005. Single-family starts rose just over 4 percent in December to 470,000, the highest monthly starts volume in 20 months, although the figure remains 74 percent below the pre-recession high in January 2006.
Sales of new single-family homes
declined by 2 percent in December. Both new single-family home sales volume and inventory are still at lows not seen since record keeping began in 1963. For monthly sales, this has been true for the past 20 months; for monthly inventory, this has been true for the past ten months. Sales are now 78 percent below the pre-recession high in July 2005.
The number of existing single-family home sales (seasonally adjusted) increased 5 percent in December to 4.1 million. Sales seesawed throughout 2011, but with steady growth for three months straight, December’s figures are up 4 percent over a year earlier; December’s sales and those in ten of the past 12 months exceeded the long-term monthly average (since 1970). With a slight decrease in inventory as well, supply fell to 6.1 months. December’s monthly sales were 35 percent below the pre-recession high in September 2005 but a strong 41 percent above their lowest level (in July 2010) since then. The forward-looking NAR Index of Pending Sales (of existing single-family homes, condos, and co-ops) fell 3.5 percent in December, after two months of strong growth; still, November and December’s indices are at their highest levels in the 18 months since the expiration for the first-time homebuyer credit (April 2010).
Multifamily building permits fell 6 percent to 209,000 in December. Still, this was the second-largest monthly permit volume in 38 months, lower only than November. The total for 2011 is up 1.2 percent over 2010. Multifamily housing starts declined 28 percent in December to 164,000, more than reversing the November jump, but the total for 2011 is up 3.4 percent over 2010. Existing condo sales rose to 500,000, and the figure is now above the long-term monthly average (since 1989); with a decrease in inventory, supply declined from 7.1 months to 6.1 months.
December was one of the two best months for housing affordability since the NAR began its index in 1989; only November was better.
Foreclosure filings—default notices, scheduled auctions, and bank repossessions—decreased by 9 percent in December from a month earlier to 205,024, according to RealtyTrac, and were down 20 percent from a year earlier. Significantly, December’s figures were the lowest monthly totals in 49 months (since November 2007). RealtyTrac attributes the drop in activity in part to various new state court rulings and state laws that have slowed the process. They expect foreclosure activity to eventually increase, but not at the highest levels seen in 2010.
Home mortgage rates (30-year fixed) fell in January to 3.92 percent, the lowest monthly rate since record keeping began in 1971.
Commercial/Multifamily
Rents in the third quarter changed little in the retail, office and industrial sectors while year-over-year changes show rent declines in the retail and industrial sectors; rates are now off 12, 16, and 17 percent, respectively, from their pre-recession peak. Vacancy and availability rates for these sectors changed little in the third quarter as well, but the office and industrial sector saw improvement over the same quarter one year ago. Apartment rents increased in both the third quarter and over the year and are now about the same as the pre-recession high. Apartment vacancy rates experienced the largest positive movement of all property sectors.
Office vacancy
rates stood at 16.2 percent in the third quarter, unchanged from the second quarter of 2011 and just below 16.7 percent in the same quarter one year ago, according to CBRE. Rents remained relatively stable and are up just 0.9 percent from the same quarter a year ago. The net absorption stood at 3.3 million square feet of space, less than half that of the previous quarter.
Retail availability rates
stood at 13.2 percent in the third quarter, little changed from 13.3 percent in the second quarter of 2011 and 13.1 percent in the same quarter one year ago, according to CBRE. Rents inched down in the third quarter and are off 3.7 percent from the same quarter a year ago. The net absorption was positive at 3.5 million square feet, a reversal of the second quarter’s negative net absorption of almost 3.0 million square feet.
Industrial availability rates stood at 13.7 percent in the third quarter, little changed from 13.9 percent in the second quarter of 2011 but 80 basis points below the figure for the same quarter a year ago. Rents stayed the same and are off 1.2 percent from the same quarter a year ago. Net absorption remained strong at 34.6 million square feet, increasing almost 31 percent over the previous quarter.
Apartment vacancy rates
stood at 5.0 percent in the third quarter, down from 5.4 percent in the second quarter and 80 basis points below the figure for the same quarter a year ago. Rents were up 1.3 percent in the third quarter and are 4.7 percent above rents of the same quarter a year ago. Completions in the second quarter of 2011 stood at 14,647 units, up from both the previous quarter and the same quarter a year ago.
Hotel occupancy rates stood at 66.5 percent in the third quarter of 2011, up from 63.9 percent in the same quarter a year ago, according to Smith Travel Research. The RevPAR Index was up 7.9 percent from the same quarter of 2010.
Rents in the third quarter changed little in the retail, office and industrial sectors while year-over-year changes show rent declines in the retail and industrial sectors; rates are now off 12, 16, and 17 percent, respectively, from their pre-recession peak. Vacancy and availability rates for these sectors changed little in the third quarter as well, but the office and industrial sector saw improvement over the same quarter one year ago. Apartment rents increased in both the third quarter and over the year and are now about the same as the pre-recession high. Apartment vacancy rates experienced the largest positive movement of all property sectors.
Office vacancy
rates stood at 16.2 percent in the third quarter, unchanged from the second quarter of 2011 and just below 16.7 percent in the same quarter one year ago, according to CBRE. Rents remained relatively stable and are up just 0.9 percent from the same quarter a year ago. The net absorption stood at 3.3 million square feet of space, less than half that of the previous quarter.
Retail availability rates stood at 13.2 percent in the third quarter, little changed from 13.3 percent in the second quarter of 2011 and 13.1 percent in the same quarter one year ago, according to CBRE. Rents inched down in the third quarter and are off 3.7 percent from the same quarter a year ago. The net absorption was positive at 3.5 million square feet, a reversal of the second quarter’s negative net absorption of almost 3.0 million square feet.
Industrial availability rates stood at 13.7 percent in the third quarter, little changed from 13.9 percent in the second quarter of 2011 but 80 basis points below the figure for the same quarter a year ago. Rents stayed the same and are off 1.2 percent from the same quarter a year ago. Net absorption remained strong at 34.6 million square feet, increasing almost 31 percent over the previous quarter.
Apartment vacancy rates stood at 5.0 percent in the third quarter, down from 5.4 percent in the second quarter and 40 basis points below the figure for the same quarter a year ago. Rents were up 1.3 percent in the third quarter and are 4.7 percent above rents of the same quarter a year ago. Completions in the second quarter of 2011 stood at 14,647 units, up from both the previous quarter and the same quarter a year ago.
Hotel occupancy rates stood at 6.5 percent in the third quarter of 2011, up from 63.9 percent in the same quarter a year ago, according to Smith Travel Research. The RevPAR Index was up 7.9 percent from the same quarter of 2010.
(Note: The commentary and data outlined below and in the accompanying table are the same as those presented last month because all the information is taken from quarterly data; The source of the data presented in this section of the Barometer changed last month: data for office, retail, industrial, and apartment property are now provided by CBRE. Smith Travel Research continues to be the source for hospitality properties.)
