Wednesday, May 18, 2011

From Federal Reserve Beige Book Report – APRIL 2011 – on Real Estate Development, Construction, Leasing, etc.

I’ve previously posted a couple of articles to share information contained in the Fed’s “Beige Book” reports. These reports are not issued every month. I think the next report will be published the second week of June.

Below, I’ve copied into this posted the “overall nationwide summary” and just four of the individual “district” reports. If you want to see what the Beige Book reports say about your district, then go to the Fed Reserve Board’s web-site and scroll through the complete report.


APRIL 2011


Real Estate and Construction

Real estate markets for single family homes for the most part either were little changed from low levels or continued to weaken across all Districts. Residential construction was described by Chicago as subdued and the spring building season is likely to be slower than previously anticipated. Market activity was still declining in the St. Louis and Minneapolis Districts, while activity in the New York, Cleveland, Kansas City, Dallas, and San Francisco Districts remained weak. Atlanta characterized the market as mixed, with Florida brokers providing most of the signs of improvement. Both Philadelphia and Atlanta noted that brokers expected the market to improve, and builders in the Cleveland District were more optimistic than in the past several months. A few Districts found pockets of improvement. For example, Philadelphia reported that agents were seeing a pickup in inquiries, showings, and traffic, although there was little increase in sales or construction. Boston noted higher activity in just the last few weeks, due in part to improved weather, and Richmond said that the market for lower- priced homes improved. The multifamily markets strengthened in several Districts, including Chicago, Dallas, Minneapolis, and San Francisco, both in terms of leasing and construction activity.

Commercial real estate activity remained weak across all Districts, although seven reported slight improvements since their last report. Market activity was still slow in the St. Louis and Philadelphia Districts and remained at low levels in the Boston, Atlanta, and San Francisco Districts. Markets in the San Francisco District were characterized as subdued, but leasing activity increased among technology firms. Most other Districts noted improvements, albeit slight, in activity. For example, Chicago and Kansas City cited moderate gains in construction, with Chicago highlighting gains in healthcare and automotive industries. Improvements in the Cleveland District were also driven by healthcare projects and, to a lesser extent, by manufacturing and energy. Office and industrial leasing improved in the Richmond District, although retail was little changed.


Commercial Real Estate

New England’s commercial real estate market was roughly flat in recent weeks. In Boston, office leasing activity is stable, but not sufficient to generate significant positive absorption. Asking rents for office space are either flat or up marginally in greater Boston. However, contacts note that some existing tenants are successfully bargaining for rent reductions, bringing their rents down to current market rates from higher levels agreed upon at the market’s peak. In Rhode Island, political uncertainty over budget deficits is said to have stalled business plans, resulting in light leasing activity, but pending deals for downtown Providence continue to engender optimism regarding office absorption in the coming months. In Portland, the commercial market was mostly quiet, with the exception of two significant dealsI for call-center space. A Portland contact perceives continued downward pressure on office rents despite modest positive absorption. Outlooks across the region call for slow but positive office absorption for the remainder of 2011, conditional on ongoing employment growth in line with recent trends. The multifamily sector remains strong in southern New England, with new construction under way in several areas of greater Boston and in the planning stages in two Rhode Island locations. Lenders continue to bid aggressively for apartment projects in greater Boston, as rental rate increases persist. While some Boston contacts worry about potential overbuilding in this sector, at least one is confident that a glut is unlikely in light of permitting hurdles and a scarcity of vacant land in desirable locations. Respondents mention no significant new construction activity aside from the multifamily sector.

Residential Real Estate

States throughout the region experienced year-over-year declines in single-family home sales in February with the exception of New Hampshire where sales increased modestly. The median price of homes also slipped slightly in the region except for Rhode Island where the median price rose. Meanwhile, sales and median prices of condominiums were lower than a year ago except in the Greater Boston area where the median condo price edged up. Contacts cite inclement weather as a factor contributing to February sales declines; sellers as well as buyers were discouraged by the weather, with home listings decreasing as well. Contacts also note that sales in the first half of 2010 were boosted by the homebuyer tax credit, making year-over-year comparisons difficult to interpret. Contacts report a recent increase in activity attributable to more favorable weather as well as the typical seasonal rise at the onset of spring. Some respondents say the distressed share of property sales has declined, but others lacked sufficient figures to assess the distressed property share accurately. Although inventory levels declined in much of the region during February, the number of homes on the market remains relatively high across New England, particularly in New Hampshire. Notwithstanding their reports of recent increases in activity, contacts emphasize that activity levels in the region’s housing markets remain far from what they would characterize as ―normal‖ and they anticipate a lengthy recovery.


Real Estate and Construction.

Reports from District homebuilders on new home sales in February and March were mixed. Florida and Georgia builders stated that sales were below year-ago levels, while elsewhere in the region sales were similar to year earlier levels. Homebuilders noted that construction activity remained below last year’s level and inventories eased further. Several residential construction contacts remarked that financing remained very difficult to secure. District residential brokers indicated that existing home sales growth softened somewhat in February and March, and were generally similar to year-ago levels. However, Florida brokers were more upbeat with the majority noting sales gains on a year-over-year basis, which were largely driven by sales of distressed homes. Brokers elsewhere in the region remarked that sales remained below year-earlier levels and were slightly weaker than in our last report. District brokers stated that home inventories eased on a year-over-year basis and that the number and speed of foreclosures coming into the market had slowed. Several contacts mentioned greater demand for rental property. The outlook for sales growth continued to improve, largely driven by positive reports from Florida brokers. Nonresidential construction activity remained at low levels during February and March. However, the majority of contractors indicated that the pace of commercial development was flat to slightly up compared with a year earlier, which is an improvement from our previous report. Backlogs declined on a year-over-year basis. Contacts noted that material prices were on the rise while competition for available projects remained aggressive. Most contractors anticipate activity to remain flat to slightly below last year’s level. District commercial brokers reported that markets continued to stabilize. Vacancy rates remained relatively unchanged from the end of last year and declining rents were noticed across much of the District. Commercial brokers anticipate a slow recovery.


Construction and Real Estate

Eleventh District housing activity remains weak, and contacts expect more of the same in the coming months. Outlooks for the second half of the year were slightly more upbeat. Respondents said the first-time homebuyer market continues to deteriorate, but some realtors and builders said higher–end homes sales had increased modestly. Apartment demand accelerated since the last survey, and contacts said occupancy rates were improving and rental rates were rising. While construction activity is picking up, demand continues to outpace supply suggesting conditions will continue to improve in the near-term. Office and industrial leasing activity picked up slightly since the last report. With construction of office buildings and warehouses at very low levels, contacts say the modest acceleration in demand for space is likely to have a positive impact on vacancy rates this year. Sales of commercial property remained at low levels, although contacts noted a small uptick in sales of foreclosures and distressed properties.


Real Estate and Construction

Activity in District residential and nonresidential real estate markets remained at very low levels overall, albeit with slight improvement noted in some market segments and areas. The sales pace for new and existing homes was mixed across the District but remained very weak overall, and contacts again noted that the limited availability of nonconforming jumbo‖ loans held back sales of higher-priced homes in some areas. In response to sluggish sales, new home construction stayed quite subdued. However, demand for residential rental space grew further in some areas, and reports noted modest increases in the construction of apartment buildings. Demand remained weak overall in commercial real estate markets, as vacancy rates for office and industrial space remained elevated throughout the District. However, further gains in leasing activity were noted for some major markets in the District, particularly in technology-intensive portions of the San Francisco Bay Area.

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