July 29, 2009
Beige Book Results: Real Estate and Construction Remain Weak
The Real Estate and Construction summary from the latest Federal Reserve regional business survey (a.k.a. The Beige Book) for the twelfth district ("San Francisco"):
Conditions in District housing markets remained very weak but showed further signs of improvement, while demand for commercial real estate continued to erode. Sales prices for new and existing homes fell further in most parts of the District, and home construction activity remained at very low levels. Combined with low mortgage rates, however, price declines have propelled a sustained pickup in the pace of home sales in many areas.
Demand for commercial real estate fell further, and with rising vacancy rates, tenants have successfully been requesting rent concessions and other new terms on existing leases. Construction activity for commercial properties also continued to fall, and contacts noted that a lack of available credit remained a constraint for construction activity and investment transactions in some areas.
To summarize the summary, residential sales volume is up on falling prices and commercial is getting squeezed. Nothing that should catch a plugged-in person by surprise.
∙ Federal Reserve: Beige Book Twelfth District Summary (7/29/09) [federalreserve.gov]
First Published: July 29, 2009 12:30 PM
Comments from "Plugged In" Readers
The WWII stock market started to head up from its lows after the Battle of the Coral Sea. The market saw what individuals and market pundits couldn't see until Midway. The March 2009 lows may be the lows for a generation. We're up from 6500 to over 9000. That it was higher in 2007 is irrelevant - 6500 to 9000 means a lot of people have a lot more money now than they did a couple of months ago, and this means higher RE prices. Low points are times to buy, not times to holler about how it can only go lower.
Conformity, group-think, and herd mentality help zebras survive but it's not good for real estate investors.
Posted by: unwarrantedinlaw at July 29, 2009 1:26 PM
Being lectured on herd mentality by a bull who probably profited from the "crazy decade" that will be the poster-child for the definition of herd mentality! True genius!
One day, there will be an entry in Wikipedia for "Herd Mentality (disambiguation: 2007-2011 Real Estate Slaughter)". You read it here first!
Posted by: San FronziScheme at July 29, 2009 1:52 PM
"Low points are times to buy..."
Certainly. Low points in the RE market that is.
While the RE and stock markets are certainly related to one another they are no means operating in lock step. If they did then all RE markets would rise and fall in synchronization. They do not.
Good luck getting the gutless non-manly ruminant herd dwelling sideliners to jump in and rescue those now being forced to sell.
Posted by: The Milkshake of Despair at July 29, 2009 2:01 PM
Posted by: Delancey at July 29, 2009 2:20 PM
Do the bears here really think that their doomsday diatribes are going to push the market lower and keep those of us who can afford to buy an already discounted home on the sidelines much longer?
Posted by: nottimhawko at July 29, 2009 3:12 PM
Our diatribes won't have to. The reality of the punishing declines will do it for us.
Go back and read the paragraph above: "demand for commercial real estate continued to erode". That means no jobs, and no plans for jobs. No jobs means home prices continuing to sink. There is no other interpretation.
Posted by: tipster at July 29, 2009 3:25 PM
Low points are indeed good times to buy!
Now, can everyone please reply to me indicating which stocks are 'low' so that I can buy them? I mean, if all I need to do is buy low, sell high, then I can make MILLIONS! Right?
Geez, this is going to be easier than I thought.
Posted by: Tall Guy at July 29, 2009 3:40 PM
People don't listen to bears. Some people, however, hear the money talking. What that money says to me right now is, "Please PLEASE don't flush me down the toilet." Hence, us renting a SFH for 1/3 of the cost to buy, with prices still going down. Sure, we could afford to buy, but my money really doesn't want to leave me.
That said, I know a some people "on the sidelines" who are seriously considering buying something right now. They do not seem to get along with their money. Strange, that.
Posted by: sidelined at July 29, 2009 3:54 PM
While the Bulls, Bears and Zebras here are busy arguing till they are blue in the face, some of us are actually taking action and placing bets right now.
Last week, however, a private equity group paid only $63 a square foot for 51 oceanfront condo-hotel units at the Regent Hotel in Miami Beach, he said. Previous units there had sold for $1,100 a square foot.
I kid you not. This way to the Sale.
That translates to a 94% sale in the sq. ft price. Can it get any better? Convince me.
Posted by: Chad at July 29, 2009 3:56 PM
A nugget from what nottimhawko wrote:
those of us who can afford to buy
Pure salesman talk. A failed attempt at deriding bears as pennyless sour losers.
Guess again. Most of us regular bears can probably buy a decent SFH in 95% of the city. OK some nice places in Sea Cliff and PH are out of my reach and will probably forever be but - sigh - I have made my peace with that a long time ago. Also most bears are renters living for less than 1/2 what those "already discounted homes" would cost us to buy thanks to our dear prop-13 tax-shielded landlords.
Posted by: San FronziScheme at July 29, 2009 4:08 PM
$63 for MB is cheap cheap cheap. sub $200 is more in line with what I think most of MB is worth, especially in the condo towers where cheap Square Footage will meet high HOAs after a few months...
Posted by: San FronziScheme at July 29, 2009 4:17 PM
Chad, all real estate is local.
The herd mentality is still to buy. The "herd" has been begging me to buy since 2004 only stopping for about 3 months to tell me how "lucky" I was that I didn't buy.
Posted by: location at July 29, 2009 5:26 PM
we so want to paint people as being on completely opposite sides in this country...bull & bear, liberal & conservative, black & white as if there weren't a gazillion shades of gray between them.
thanks to my dad, my own research and comfort level and several posters on this site (a special nod to ex-sfer and LMRiM) and others, we have not bought in our nine years here. coupled with living below (though quite well none the less) our means, as of a few months ago, i could apply the LM part of LMRiM's handle to my own if i wanted to. and this is in liquid assets not including property owned elsewhere. and you know what? it feels great and no one will ever convince me i was throwing money away on rent. and we love where we live on top of it.
and it makes me all the more reticent about buying before i feel really good about it. being a bull or bear has nothing to do with it. in fact, i may just keep socking it away for a while.
now i may not be as much of a man as a dude who keeps his wife at home in a burqa, but i am in good financial shape.
as for the lebanese, who am i to judge? the butch lebanese are definitely manly but the lipstick lebanese can be quite lovely. i mean, look at ellen degeneres and her partner. just sayin'.
Posted by: andyc at July 29, 2009 8:20 PM
"Do the bears here really think that their doomsday diatribes are going to push the market lower"
I've always assumed that SS commentary has no effect on the market whatsoever. The phrase "spitting in the hurricane" comes to mind.
"6500 to 9000 means a lot of people have a lot more money now than they did a couple of months ago"
Indeed. Absolutely correct. About $13T worth of dud assets on bank balance sheets that have been exchanged for cash. And who has this cash been lent out to?
Businesses to expand? Nope.
And what have they been buying? Stocks.
So now that the plankton have rushed in to buy these stocks at inflated prices from the wall street whales what happens next?
Ben Bernanke announces that there are inflationary pressures and begins draining liquidity.
The hedgefunds sell off their remaining stocks to raise money to pay back the loans. Stock prices collapse.
The whales are left with cash.
The plankton get the shitty end of the stick.
Posted by: diemos at July 29, 2009 9:29 PM
That translates to a 94% sale in the sq. ft price. Can it get any better? Convince me
who knows? however, I will be the first in line to buy a place in SF if prices fall 94% from their mid-decade highs. Heck, I just spent nearly $80,000 redoing my house last month (Hardie siding, windows, custom wood doors, fence, deck, exterior lighting, porch redo). so hopefully I'm "man" enough with big cajones. I did it because my other half was squawking, and this way I'll be happy in this home for a few more decades.
This beige book is hilarious. Filled with the obvious. Sales picked up when prices dropped? You don't say.
Commercial RE is under pressure? really.
Lack of credit is impacting the RE markets? who could possibly have foreseen this.
as for the stock market: sure the indexes are up big over the last few months-it's called a bear market rally and they usually are aggressive and large. Unfortunately it's happening at rock bottom volume, and the lions share of that volume is computer trading and proprietary trading between firms. (in other words, computers trading with computers, and Goldman Sachs trading with itself).
Unfortunately, that doesn't restore a lot of wealth to the average San Franciscan to start buying RE.
Also, firms are beating very very low expectations and they are doing it by CUTTING jobs and CUTTING expenses, not by raising revenue. Not sure how cutting jobs leads to increased income to buy RE.
our economy can only work so long by cutting employment. and as we get through this year into next year it'll be harder for the firms to beat YOY numbers. (it was easy to beat last year's numbers because they were so bad!)
not to mention seasonal adjustment. employment numbers are seasonally adjusted UPWARDS from Jan 1 Through June 30, then adjusted DOWNWARDS from July 1-Dec 31. (this happens every year). People for whatever reason seem to ignore this. Thus the employment numbers may start looking worse starting next week. Same with RE numbers. RE is seasonally strong every summer, and seasonally weak every winter. Thus, the NSA RE numbers will start looking worse a few months from now.
it's not to say that things will worsen, it's to say that they will look worse which will act as a drag on equities.
(this is why I poopooed the NSA housing numbers from last winter... you gotta look at SA and NSA numbers together in concert with historical numbers)
not to mention the coming CRE, credit card, Alt A/option ARM, and student loan defaults that will continue to pressure banking. Or the near constant massive Treasury auctions that may be indigestible by the market. (if this continues then yields will have to go up, and increased interest rates are not usually a positive for equities unless they are as a result of growth... these are a result of oversupply of debt)
it was a huge mistake zombifying our banking industry. we've wasted our money on the well connected banking elite to give them record bonuses. we will need that money for the next stimulus
Posted by: ex SF-er at July 30, 2009 5:01 AM
I love this implied slam at the 'bears', "doomsday diatribes".
Umm, hello! The bears were 100% right.
When bearish posters on SS said the expected bay area prices to drop 30-40% from the peak they were called "doomsayers" but look at the bay area case shiller index is down 30% the median also tanked, sales volume tanked, rents are falling CRE is falling, what were the bears wrong about?
Have we hit bottom? Maybe. Heck, hopefully.
But it looks as if residential real estate is going to face another wave of foreclosures in 2010 and unless job creation pics up there is going to be substantial negative pressure on prices.
But yeah, if you can get in now and hold for a good decade there is a decent chance you will do well. But you can certainly wait a year or probably two and still do just as well, possibly better. There is nothing in any indicator that suggests you should be in a rush to 'get in'.
Posted by: badlydrawnbear at July 30, 2009 6:01 AM
Welcome to the club.
Posted by: HappyRenter at July 30, 2009 7:20 AM
Tall Guy wrote:
> Low points are indeed good times to buy!
Just because prices are below the peak does not make it a good time to buy.
> Now, can everyone please reply to me indicating
> which stocks are 'low' so that I can buy them? I
> mean, if all I need to do is buy low, sell high, then I
> can make MILLIONS! Right?
If you ask a stock broker they will give you plenty of good stocks to buy (since for most stock brokers it is always a good time to buy/or sell) stocks, just like you can ask a real estate broker to tell you about good homes to buy (since for most real estate brokers it is always a good time to buy/or sell real estate…
Posted by: FormerAptBroker at July 30, 2009 7:53 AM
thanks HappyRenter. we've been really fortunate and i can't claim any financial prowess.
we actually put in a few offers about 5-6 years ago and got so turned off by the multiple bid thing we just backed off entirely. had we bought then i would have had to use most savings for a sizable downpayment and then still, with the mortgage payment, would have been able to save next to nothing. for something that wasn't even that great.
we're very happy with the options we have now and not in any hurry.
Posted by: andyc at July 30, 2009 7:58 AM
diemos, i agree with you on stocks. maybe another reason to move your investments around? especially if you've reaped any benefits from the last 5 months.
fronzi, i may be a salesman, but i'm not selling houses. and it's exactly your rental strategy through the 04-09 period that has allowed me to build the capital to consider opportunities in today's market that may pan out to be very lucrative 10 years from now. feel free to play the game of timing it EXACTLY right, but a general attitude that current reductions we've seen in no way protect homebuyers from long term continued losses is purely an emotional claim, not a logical one.
Posted by: nottimhawko at July 30, 2009 10:20 AM
@ex SF-er @ 5:01am
How do you see very low trading volume in the stock market during this current bear rally? I actually see the volume to be among the highest levels right now over the last five years. Is there something I am missing here? Also how do you know that most of the trading is computer-computer?
Thanks in advance for the response... I am just trying to figure out what I should do with my gains of the past few months and whether to still remain invested in the market.
Posted by: anon at July 30, 2009 10:33 AM
Check out zerohedge.com - they've been running a ton of articles on the increase in trading traffic due to high frequency machine trading.
Posted by: wanker at July 30, 2009 10:48 AM
recent article about electronic trading volume in the nytimes (linking to cnet because the times has it archived) :
Posted by: nottimhawko at July 30, 2009 11:32 AM
I haven't been following the equities markets closely for the last 2 weeks or so because I've been busy, so I could be in error and volume is up in the last 2 weeks.
Just google "stocks up on low volume" and you'll get a ton of hits from this summer.
when I followed it closely, I used bloomberg as source primarily.
as for high frequency trading and proprietary trading, this info is mainly in the trading blogs and the trading media.
zerohedge is a very good trading site with lots of good information/data, HOWEVER you must be careful because there is a very strong bearish tilt to their posts. Just keep that in mind when reading.
However, zerohedge was posting excellent data on Goldman Sach's proprietary trading account (which some days was making up over half of the volume). they also were very good at posting data on high frequency trading. (on some days high frequency trading makes up 73% of the market!)
zerohedge was putting significant pressure on the NYSE and also on Goldman Sachs thus due to that some of this data is now being witheld from the public-specifically Goldman's proprietary trading amounts and also some of the high frequency stuff.
the markets are a joke and have been for a few months now. all of course IMO.
here's a few examples:
Posted by: ex SF-er at July 30, 2009 4:44 PM
better yet, get your data here (this only looks at NYSE data, but it is representative)
one of the pdfs is as follows (WARNING PDF)
it shows that on July 6 to 10:
program trading made up 33.6% of all trading on NYSE vs 26% last year
Volume on NYSE was down from 3611 to 2341.
Total volume all markets down from 3112M to 2731M.
Principal trades made up 40% of NYSE volume (that means firms traded for their own accounts, not for their customers)
and Goldman made up half of that.
thus Goldman Sachs accounted for 20% of the total NYSE volume, trading on its OWN behalf.
Posted by: ex SF-er at July 30, 2009 5:01 PM
nottimhawko, I hear you.
I am not trying to pick a bottom. My strategy is cost-averaging over a few years. Once I see rental properties that will provide a decent ROI and cash flow neutral (my numbers have to work with 50% down, 10-Y mortgage, pretty agressive), I will purchase one property at a time, probably one or two a year, a strategy that paid off in a previous life. Now if the crazies were less trigger happy and were looking at the real numbers instead of thinking flipping, SF would be a better place to invest. But it seems many are just interested into a quick turn-around.
Posted by: San FronziScheme at July 30, 2009 6:00 PM