Smoke and Mirrors

The recent activity of home sales in markets which are affordable to first-time buyers, are being driven mainly by foreclosures and short sales. Subsequently, the typical or average homes for sale are not moving yet.

Then there are the too few sales in expensive cities and towns thanks in part to a lack of financing creating the impression that these overly priced homes are significantly decreasing in price. Which they are not.

Overall, sales continue to be negative to flat with foreclosures still rolling along and gaining speed. Absorbtion/inventory is just about at 10 months, which is much too high- about 4 months over normal levels.

On the labor front, it’s also more bad news. The current administration is now in damage control mode- gushing about how sorry they are for stating that the job market and economy is much worse than they predicted.

Retail sales for June are expected to be down- yet again, somewhere between -5% and -6%. Bankruptcies and closings for major retailers continue to loom as well.

The jobless rate will keep climbing and consequently so will loan defaults, which will only add fuel to foreclosure fire. Delinquencies on credit card debt and home equity loans soared to an all-time high in the first quarter of 2009.

Meanwhile…inventories will keep increasing as a result- and the housing market recovery won’t even get a city block out of the gate.

The REAL Unemployment Rate

 RE Report

The real unemployment rate released on July 2nd by the Bureau of Labor Statistics is now 16.5%, a full 7 points higher than the officially reported rate.

 The June numbers from the Bureau of Labor Statistics, using the bureau’s expanded “U-6″ rate, show an amazing 16.5% rate of unemployment, not the 9.5% that was being reported.

The real rate includes marginally attached or ‘discouraged’ workers which the BLS reports- “Are neither working nor looking for work but indicate that they want and are available for a job.” Or full-time workers who have been relegated to part-time workers.

It does not include self-employed workers whose incomes have severly diminished. It doesn’t look at former full-time staff employees who have accepted short-term contracts without benefits and at a fraction of their former salaries.

The current downturn has pushed up unemployment rates over any previous postwar recession in the nations history. From 4.9% at the start of the recession to the current (official – but synthetic) rate of 9.5%.

The government and the liberal media will not publicize the REAL data, because they are fighting a propaganda war. Spending Billions upon Billions of tax payer money in a futile attempt to save the failing economy.

We won’t even get into the long line of other issues that will keep the US economy from recovering anytime soon- such as the mounting tide of loan defaults, foreclosures and small business/retail failures coming down the pike.

The White House has finally admitted that “the unemployment rate is much higher than we thought it would go and it may even get worse”

Gee, no kidding. How about 11% and maybe higher in all likely hood. So, how’s that change working out for you?

The ‘SPIN’ from the NAR continues…

RE Report

The National Association of Realtors released Pending Home Sales data today and their findings reveal a One Tenth of One Percent supposed increase. One tenth!

Now mind you, that in any data set, a standard/typical margin of error is + or – 1% to 2%. So the One Tenth is negligible. 0% and may even be negative.

What the NAR doesn’t release is how many of those pending sales fall through- due to unapproved mortgage loans and/or potential buyers who back out for whatever reasons.

The NAR is now touting that Pending Sales have risen for the fourth straight month. But a closer examination will reveal that the data is inconsistent and unreliable. Also, the NAR does not release data on foreclosures- that is why companies like RealtyTrac have filled the gap.

Foreclosures are still increasing- and have also contributed significantly to the weak sales activity.

The NAR also does not provide to the public Days on Market (DOM) which are rising. The NAR does not release to the public List/Sold price ratio either.

This info is not classified or secretive, the fact is that if the public had access to all of the data- it would show the real and true picture of the housing market. 

The bottom line is that, this info in anything but a ‘up’ market hurts their marketing propaganda campaigns. The housing market is not going to stabilize anytime soon because of some of the following reasons;

• Credit issues (tighter loan standards from lenders)
• Debt
• Job loss (still increasing and will for the remainder of ‘09)
• Flat to decreasing wages
• Loan Deliquencies
• Loan Defaults

ARM resets- from 2004 to 2007, there was $750 Billion dollars worth of option ARM loans granted and taken. The MBA predicts that more than half of all outstanding option ARMs will eventually default.

This could result in a massive flood of additional foreclosures and a continued slide of the housing market overall. There will be some regions and cities where housing does in fact stabilize and even slightly increase.

Unless the tide of foreclosures can be halted and jobs created/re-instated, there will be no real improvement on a national level for a long while.

Geographic-Market Study: Route 22/Green Brook, NJ

RE Report/Analysis

Update I

Route 22 in Green Brook to the edges of North Plainfield New Jersey is home to a large and dense contingent of commercial businesses. The Route 22 Green Brook-No. Plainfield section is a part of a massive commercial – light industrial, 31 mile corridor that basically extends all the way from Hillside out to Whitehouse.

RE has recently conducted an in-house Geographical market analysis of saturation, property type and vacancy statistics within the 3.3 mile stretch of Route 22 from Warrenville Road in Green Brook to West End Avenue at the outskirts of No. Plainfield. This section is a key, high-traffic retail/service area for Bernards, Warren, Green Brook, Dunellen Watchung and No. Plainfield.

The 3.3 mile market area contains almost all commercial properties. The exception are three apartment building complexes- one on the west side and two on the east bound side of 22. Other than these apartment complex units there no current residential dwellings directly on Route 22.

Property and sub Types:

Commercial Retail/Service – 103 sub-total

• Strip Centers -              13
• Commercial Offices -  2
• Big-Box Retailers -      1
• Anchor Stores -            5
• Car Dealerships -          6
• Banks -                              5
• Numerous eateries and businesses make up the remainder

GC/Industrial – 4 sub-total  |  107 total properties (non-residential)

Within the 3.3 mile corridor along Route 22 are 107 commercial-industrial units, either contained in strip-centers/stores or free-standing structures. There are approximately 4 strip-center/stores with a 32 unit per mile ratio- along the Green Brook commercial corridor.

Of the 107 total properties, there are 24 vacant units. Of those 24 vacancies, 19 are advertised for rent, 2 listed for sale, and 3 are abandoned. The three abandoned properties include a brand new Circuit City that was built and completed just as the company announced liquidation. Two additional empty free-standing units; one commercial store front, the other a general commercial trucking parts building.

Geographical vacancy rate analysis

• 107 units / 26 completely vacant = 24% total vacancy rate
• 107 units / 21 vacant (for lease/sale) = 20% vacancy rate
•  26 vacant properties / 3.3 miles = 7.9 vacant units per mile ratio

Regarding the total amount of properties and the number of vacant units in such a dense, short stretch, the approximate 25% overall vacancy rate is considered very high.

One-quarter of all properties in the Green Brook commercial corridor are empty. Given the moderate to high incomes of the immediate and surrounding towns, it proves that no one area is immune to the deep recession/mild depression we are in.

These closings create more job loss for employees and store owners alike. Also, there are the after effects of job loss that will continue to hurt the economy; such as loan deliquencies, loan defaults and probable home foreclosures as a result. Unemployment in general is still rising while consumer confidence is still slipping.

Though perhaps the loss of some businesses may be a positive for the remaining ones. Subsequently, these retailers might see an increase in sales and/or traffic. But that scenario remains to be seen.

No one knows for sure how long this economic crisis will last, but you can be sure that there are a lot of store owners and retailers holding on by threads- hoping it will end sooner rather than later.

More Abysmal News for NJ’s Economy

RE Report/Analysis

Update I

In long line of New Jersey businesses that have gone liquid or bankrupt, there are now 30 more you can add to the dole.

Here is the list of the 30 franchises that was delivered to the unfortunate New Jersey Chrysler/Jeep Dealers.

Certainly this is not good news for each town and city these dealerships are located in. It means more job loss and less economic activity, which will only prolong the mild depression the nation is already in.

Chrysler/Jeep Dealerships to close in NJ:

1. Berlin
2. Butler
3. Belle Mead
4. Cape May Court House
5. Elmer
6. Green Brook
7. Peapack
8. Orange
9. Manahawkin
10. Englewood
11. Hightstown
12. Kearny
13. Cherry Hill
14. Hamilton Square
15. Paramus
16. Runnemede
17. Marlton
18. Parsippany
19. Maple Shade
20. Shrewsbury
21. Woodbridge
22. Neptune
23. Rutherford
24. Jersey City
25. Wayne
26. Rahway
27. Tenafly
28. Trenton
29. Wyckoff
30. Westwood

On May 14, Chrysler LLC sent letters by United Parcel Service to Chrysler, Dodge and Jeep dealers. That same day Chysler had sent an official request to the U.S. Bankruptcy Court in New York to close about 25% of its 3,181-dealer network, 30 located in NJ.

Within the past nine months New Jersey has lost a significant amount of retail businesses. A collective of franchises, chain stores, independent merchants and big-box/department store retailers.

RE has compiled a short list of companies/businesses throughout New Jersey and in specific regional areas that have recently closed doors. Some16 major companies have either liquidated or closed up certain stores/franchises within the past week to the previous 9 months.

Chain/Company Owned Liquidations

Circuit City | Fortunoff  |  Drug fair |  Office Depot -  State Wide

Filene’s Basement |  L-N-T  |  Marty’s  –  State Wide

Chain/Company Owned Store Closings

DCH Auto Group/Saturn Stores – Eatontown, North Brunswick

InkStop -  Ledgewood, Rockaway and Wayne

Rite Aid - No. Plainfield

Ruby Tuesday – Green Brook

Jiffy Lube - Green Brook

Franchises

Stone Cold Creamery – Warren

Quiznos – Warren

Dairy Queen – The Hills of Bernards

BP/Amoco – Green Brook

Independent Businesses

Citizens Community Bank – Ridgewood

Basking in Java – Basking Ridge

Those 16 major retailers added to the 30 Chrysler Dealerships will have and had have a tremendous impact on the New Jersey economy.

There are some in Trenton who are attempting to paint a rosy picture, saying things like the downturn has peaked and we should be coming out this crisis soon.  But the reality is and will be much different. New Jersey should not expect economic recovery any time soon.

U.S. Commercial Property Index | Q1

RE Report

First quarter commercial market data indicated a continued steep decline in growth and price for all commercial real estate- with the office sector leading the way.

Fourth quarter numbers revealed a significant-12.2% drop, while Q1 2009 stands at -10.5%. An approximate negative 16% change. Apartments, Industrial and Retail properties all declined respectively, leading to the overall -10.5%  drop.

Q1 year over year data shows  -9.2% in 2008 vs -10.5% for 2009- an approximate 14% downward change. Both data sets indicate close, consistent negative performance. The statistics and quarterly index covers 25 national commercial real estate markets in the U.S.

• Q1 2009 price index: -10.5%
• Q4 2008 price index: -12.2%
• Q1 2008 price index: -9.2%

Data provided by IDP (IDP US Property Index)

National Foreclosures Hit Record High- Yet Again.

  From Bloomberg:

May 13 — Foreclosure filings in the U.S. rose to a record for the second consecutive month in April as banks increased efforts to seize homes from delinquent borrowers.

A total of 342,038 properties received a default or auction notice or were seized last month, RealtyTrac Inc. of Irvine, California, said today in a statement. One in 374 households got a filing, the highest monthly rate since the property data service began issuing such reports in 2005.

“What you’re seeing is the inevitable result of severe job losses,” Nicolas Retsinas, director of housing studies at Harvard University in Cambridge, Massachusetts, said in an interview. “Until we stem the job losses, we can expect to see continuing foreclosures.”

New Jersey’s Rate:

New Jersey had the 22nd highest rate, one in 695 households, and filings fell 4 percent to 5,034.

Full story here:  http://www.bloomberg.com/apps/news?pid=20601087&sid=aYokz_rb3kbw&refer=home#

The Cap Rate Flux

 RE Report/Analysis

As the commercial real estate market becomes softer and more susceptible to the deep recession, Cap Rates or Capitalization Rates, are going to become an even greater concern and metric to investors.

Cap rates vary depending on the supply and demand for commercial property, capital credit markets as well as the overall economic climate.

Over the previous few years, Cap rates were too low due to an assumption of continued economic growth and rising rents. This partially contributed to an over valuation of most commercial properties.

The Cap Rates of the past few years never truly reflected the true potential risk factors involved with commercial property and the ebb and flow nature of economics. Investors must consider Market risk, Interest Rate risk and Operational risk.

Consequently commercial mortgages may be in-line to take huge hits because of the fluctuating cap rates investment banks use to value  commercial real estate.

Matthew Anderson at Foresight Analytics, calculates that cap rates have risen to at least 8%, based on such recent property sales and the decline in shares of REIT’s. Prior, the average was 6% at the top of the market. Today’s Cap Rates are a bit higher, but probably not accuratley reflective of the current risk.

A change in cap rates combined with an approximate drop of 15% in property cash flows, means commercial property values overall might have fallen more than 30%. Moody’s and Case-Shiller indices’s reflect approximately a 20%+ figure.

Cap rates tend to utilize one year of Net Operating Income to determine the value of a property. This is somewhat a rough, or quick and dirty indicator of value. Traditionally, property value increase as NOI (with lease escalation clauses) increases as well.

Also, most Cap Rates do not take Opportunity Cost into consideration. I.E.- The best alternative to a specific investment, the most valued alternative passed up, is the opportunity cost of a specific investment decision.

Utilizing realistic Cap Rates are critical to determining a property’s true value potential. Finding a ‘real’ cap rate can be akin to finding a needle in a haystack.

A more reliable indicator of value using the Income Approach, is to perform a Yield Capitalization analysis rather than a Direct Cap analysis. But one of the draw backs in this type of progressive analysis is that forecasting Cap Rates becomes more of a guess than an exact science.

A good property valuation analyst will source many different data sets as well as analyze the statistics on the property in question to come up with a credible cap rate. Though often times, obtaining true data from a property owner can prove to be difficult.

Strictly relying on the word of the owner or manager, and top name cap rate survey companies can lead to unrealistic figures in the analysis and value potential. In the end, it becomes an issue of inturpeting and balancing all the varying data into a reliable analysis.

Abating or Intesifying

The first quarter survey by the National Association for Business Economics indicates that the economy is at an inflection point, but not quite a turning point, said NABE lead analyst Sara Johnson.

The U.S. economy is still in decline but results from the Q1 economic survey show evidence the recession may be abating

“Key indicators – industry demand, employment, capital spending, and profitability – are still declining, but the breadth of decline is narrowing,”  said Johnson.

Although the latest positive construction spending and pending home sales indicators may not truly be a credible measure of these claims. Certainly, suggestions and outright ridiculous claims made by the Fed, especially chairman Bernanke go way beyond optimism.

Industrial Production was down again in April, private payrolls dropped another 491,000 and the unemployment rate is expected to be near 9% after tomorrows report. Which will be 15 straight months of jobs decline.

Retail Sales were way down for the month of April as well as Auto Sales. Personal savings slightly declined as food and fuel prices increased, while wages remained flat to negative.

Many banks are still reeling from massive residential mortgage losses, coupled with commercial mortgage defaults climbing and there are still more bank failures to come. GM and Chrysler’s despair are also weighing heavy on the economy as well.

Do not overlook the problematic rash of foreclosures that have been flooding the housing market and there is tide of foreclosures which are still expected to rise in the next half of 2009.

So even though there is some very slight positive data coming through, the majority of indicators reveal that there is a long way to go before the economy stabilizes.

RE simply cannot agree with the growing sentiment that one of the worst U.S. recesions (or as we have previously stated- a mild depression) will be over by September 2009- as stated by many shill economists and the rubber-stamp Fed personnel.

Enough Said

Commentary

Ben Bernanke’s comments today were so off the charts and just absolutely ridiculous. Clearly revealing that he is but another paid sock-puppet within this left-wing, hidden agenda administration.

We don’t know who it is, but someone has their fist so far up Bernanke’s ass- it’s apparently causing him to spout the rhetorical nonsense of babbling lab monkeys.

Speaking of asses; Dodd, Frank, Biden, Feinstein and a host of others in the 3-piece suites lair are either implicated or about to be in several corrupt and despicable issues. Besides the standard tax-evaders there are a bunch of thieving scum-bags within the democratic party who are rapping the American public.

We can only hope that sooner rather than later, all of these greedy, power hungry Criminals are jailed or at least thrown out of office.