This week, we had economic data coming in that reported much higher jobless benefits claims than had been expected. Over 573,000 claims were filed, nearly 50,000 than the benchmark estimate that economists had predicted. Of course, economists being wrong is by and large as reliable an event as the sunrise, so interpret that statistic as you will. The larger implication of the jobless numbers is the rather severe uptrend. Remember, the job market functions just like any other (relatively) free market. The laws of supply and demand largely determine hiring (or firing) cycles, which fluctuate naturally according economic conditions.
But when firms are doing as much housecleaning as they have been over the past several months, the effects are not going to limited to the job market. In several articles, I have argued my thesis that the worsening employment situation means that the downtrend in the housing markets will continue. I have predicted that while demand will, and indeed has, started to return, prices in many areas have yet to hit bottom.
There is another connection that jobs play in the real estate market, and that is in commercial real estate. Commercial real estate refers to the portfolios of office building, apartments, retail stores and lots held by developers and commercial leasing trusts, also known as REIT?s (real estate investment trusts).
I can?t speak with certainty for other areas of the country, but my suspicion is that the trend I?m noticing in southern California is playing out in other locations as well. The number of commercial real estate vacancies has increased exponentially over the past three months, with stores and offices either downsizing or just going out of business, even at once busy strip malls and shopping centers. Grocery stores, malls, and Targets/Wal-Marts are still thriving, but the number of privately or family-owned businesses being forced to close is a bit depressing, both from a sentimental and economic perspective. The fact is that there are a greater number of consumers who are cutting back on personal spending, which will be further exacerbated by credit card rate hikes and limitations on personal credit lines by banks.
A microcosm of the burden that this places on commercial real estate portfolios would be the conditions that have forced the New York Times to take out a new mortgage on its New York headquarters in order to avoid the fate of the Tribune company, who last week filed for bankruptcy.
Stock charts for REITs would seem to show that they are heavily oversold. The chart for IYR, an ETF which tracks the aggregate performance of REITs, is down roughly 50% on the year.
Some analysts might claim that this is an indication that any future bad news has been discounted in the stock price. Yet with jobless numbers and consumer spending proving so difficult to predict, how can any such speculation about discounted prices be taken seriously? As conditions worsen, I would not be surprised at all if commercial real estate investments took a turn for the worse.
Last 3 posts by phillenbrand
- Loan Modification Fix - July 20th, 2009
- Free Home Loan Modification Help For Homeowners - July 10th, 2009
- Would One Mortgage Regulator Work? - May 21st, 2009
Related posts:
Loading ...