by Calculated Risk on 1/02/2010 11:59:00 AM

From Roger Vincent at the LA Times: Retail space opens up as big chains shrink

Amid a still-tepid economic recovery, big retail chains are expected to continue closing their less productive stores and retrenching on expansion plans. But at the same time, others will be hurtling into the breach to take advantage of falling rents and vacancies in neighborhoods they couldn't get into a few years ago.

"The prediction for next year is more re-sizing and relocating of retailers," said real estate broker Richard Rizika of CB Richard Ellis.

There are almost 100 empty big-box retail stores in Los Angeles County, according to a study by Rizika. They have a combined total of 4.5 million square feet, or about 78 football fields' worth of vacant space for rent or sale. Most of that came from liquidated businesses Circuit City Inc., Mervyns and home furnishings chain Linens 'n Things Inc.

The vacancy rate is expected to rise further in 2010, and this will continue to push down rents - leading to more distressed retail properties - and also less investment in Multimerchandise shopping structures.

Reis is expected to report the U.S. mall vacancy rate for Q4 next week. Reis reported in October that the strip mall vacancy rate hit 10.3% in Q3 2009; the highest vacancy rate since 1992.

"Our outlook for retail properties as a whole is bleak," Victor Calanog, Reis director of research, said. "Until we see stabilization and recovery take root in both consumer spending and business spending and hiring, we do not foresee a recovery in the retail sector until late 2012 at the earliest."

by Calculated Risk on 1/02/2010 08:43:00 AM

Another "Lost Decade" story, this time in the WaPo by Neil Irwin: Aughts were a lost decade for U.S. economy, workers

It was, according to a wide range of data, a lost decade for American workers. ...

There has been zero net job creation since December 1999. ... Middle-income households made less in 2008, when adjusted for inflation, than they did in 1999 ... And the net worth of American households ... has also declined when adjusted for inflation ...

Click on graph for WaPo page in new window.

This graphic from the WaPo shows job growth by decade, change in GDP, and percent change in household wealth for every decade since 1940.

Hopefully the '10s will be much better.

by Calculated Risk on 1/01/2010 09:15:00 PM

From Peter Goodman at the NY Times: U.S. Loan Effort Is Seen as Adding to Housing Woes

The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.

... desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

The article covers a number of topics, but I think these are key:

For the people that qualify - and aren't deep underwater on their homes - HAMP is a fine modification program. However there is no way this program will "reach up to 3 to 4 million at-risk homeowners". I noted HAMP would probably be a disappointment when it was announced early last year:

This probably leaves the homeowner far underwater (owing more than their home is worth). When these homeowners eventually try to sell, they will probably still face foreclosure - prolonging the housing slump. These are really not homeowners, they are debtowners / renters.

Treasury is terrified of a flood of new foreclosures. I believe that is why the Treasury issued a directive last week extending the trial modification period to at least the end of January.

There are several possible options:

More short sales. Short sale activity is already increasing, and the Treasury introduced the Foreclosure Alternatives Program to help with short sales and Deed-in-Lieu of Foreclosure transactions. However servicers are very afraid of short sale fraud (non-arm length transactions), and short sales are also distressed properties - pushing down prices - something Treasury is desperately trying to avoid.

Encouraging servicers to write down principal. This would be very expensive, and if paid for by taxpayers - it would be very unpopular because it would appear to favor speculators over the prudent. This is what Mark Zandi, chief economist at Moody's economy.com is supporting:

Mr. Zandi argues that the administration needs a new initiative that attacks a primary source of foreclosures: the roughly 15 million American homeowners who are underwater, meaning they owe the bank more than their home is worth.
...
Mr. Zandi proposes that the Treasury Department push banks to write down some loan balances by reimbursing the companies for their losses. ... “We want to overwhelm this problem,” he said. “If we do go back into recession, it will be very difficult to get out.”

Converting homeowners to renters. This is something Dean Baker suggested, and is kind of a Single Family Public Housing program. This would avoid the flood of foreclosures, and the banks could sell the homes over several years.

None of these programs is especially attractive, so I expect more delays and "can kicking" that will keep foreclosures elevated for years.

by Calculated Risk on 1/01/2010 05:54:00 PM

Nick Timiraos at the WSJ writes: Five Key Housing Issues to Watch in 2010

Here is his list:

Mortgage rates. Timiraos discusses what will happen to mortgage rates when the Fed stops buying MBS.

Fannie, Freddie and the FHA. Timiraos discusses the uncertainty about Fannie and Freddie, and the expected tightening of FHA lending standards.

Loan modifications. The HAMP program has converted few borrowers to permanent status. Will there be a new flood of foreclosures and distressed homes when the HAMP trial period ends?

More loan resets. This is really about recasts. The key index rates - like LIBOR and the one-year Treasury - are so low, the resets don't matter. But for those paying interest only or with a negatively amortizing loan, a recast could mean a significantly higher monthly payment.

Tax credit and home sales. Timiraos wonders about the impact on the market when the tax credit ends.

I reviewed the status of all these issues in Government Housing Support Update

Although all of these issues are important, I'd probably start from a different perspective:
1) What is the current supply situation and how will it be impacted in 2010?
2) What will happen to demand?
3) What will happen to prices?

As an example, the loan modifications and more loan recasts impact supply, whereas higher mortgage rates, tighter lending standards, and the end of the tax credit will all impact demand. I'll try to address these issues in a 2010 housing overview soon.

by Calculated Risk on 1/01/2010 01:02:00 PM

What will be the impact of the 2010 Census on employment?

Click on graph for larger image in new window.

The first graph shows the impact of the decennial Census on Federal Government employment (Seasonally adjusted) and on the unemployment rate.

Note: left on right scales don't start at zero to better show the change.

Every 10 years there is a large spike in Federal Government employment, but the Census has little impact on the unemployment rate.

The second graph shows the monthly change in Federal government employment during the last two decennial census periods (1990 and 2000).

There was a surge in payroll employment in March, April and especially in May. And then almost all of the jobs were lost in the June through September period. We should expect a similar pattern this year.

Note: there are reports that the Census Bureau will hire up to 1.4 million people, however that represents some contingency planning, and includes a number of people already hired temporarily in 2009. We can probably expect a couple hundred thousand people added between January through April, and another 500 thousand or so in May. This could push the unemployment rate down slightly, but probably in the 0.1% to 0.2% range.

The BLS provides a monthly report of Census hiring. This graph is from the BLS report and shows the historical impact of the Census on Federal Government employment.

There was a small spike in employment in April 2009, and currently the decennial census has little impact on employment. This will be something to check every month - especially from March through September.

by Calculated Risk on 1/01/2010 09:53:00 AM

A couple of stories that I missed yesterday ...

Dow Jones reports that the Chicago Institute for Supply Management revised down the Chicago PMI to 58.7 on Thursday from the announced reading of 60.0 on Wednesday. The most significant change was to the employment index that now shows contraction at 47.6 compared to the announced 51.2.

And the WSJ reports that the Treasury announced they made their final TARP investment in a bank: Treasury Ends TARP Bank Investments (ht jb)

The U.S. Treasury this week officially ended the bank recapitalization portion of its Troubled Asset Relief Program. ... A Treasury spokesman said [10 small banks] would be the last to receive capital under the effort ...

by Calculated Risk on 12/31/2009 11:16:00 PM

Happy New Year!

Thanks to everyone for reading. And Happy 2010 to All!

The first week of 2010 will be chock-full of data. Should be very interesting. And oh ... good riddance to the aughts!

From Tanta's sister Cathy ... A little "New Years Eve" Rock Blogging

by Calculated Risk on 12/31/2009 08:07:00 PM

Prices are still too high in some areas ... yeah, these people put half a million down - and the foreclosure auction is coming up.

by Calculated Risk on 12/31/2009 05:14:00 PM

From USA Today: Apartment renters win as vacancy rate climbs (ht Brian)

Rents fell a record 3.5% in 2009 after factoring in freebies, according to MPF Research. MPF projects prices will fall an additional 2% next year ...

"I've been at this 35 years, and it's by far the worst I've seen it," says Jeff Cronrod of the American Apartment Owners Association.

Nationwide, apartment vacancy is 7.8%, up from 4.8% at the end of 2007, says MPF Vice President Greg Willett.

Note: Reis reported the apartment vacancy rate at a 23 year high 7.8% at the end of Q3 2009, and the Census Bureau reported the total rental vacancy rate at a record 11.1%.

The article notes that the supply of rental units is growing as investors buy homes to rent for cash flow and some "homeowners who want to move but can't sell their houses because they're worth less than their mortgages are renting them out instead."

Hey, who does that remind you of? (hint)

by Calculated Risk on 12/31/2009 03:15:00 PM

Here are the results of the reader poll. Thanks to the 4,518 people who participated!

Click on graph for larger image in new window.

The first question was the outlook for GDP growth in 2010. Readers who participated in the poll tend to be pessimistic, with 57% expecting a double dip recession, and another 30% expecting real GDP growth to be below 2% in 2010.

Usually the economy grows very quickly after a severe recession. As an example, following the '48/'49 recession, the economy grew at a double digit growth rate for the first three quarters of the recovery. In the 2nd half of 1959, the economy grew at a 9.7% rate, and in the year following the '73/'75 recession, GDP increased 6.2%.

Since this was the most severe recession since the Great Depression, a normal recovery would probably be 8%+ real GDP growth for a year or so. That isn't going to happen. Even a 4% growth rate would have to be considered sluggish by historical standards.

I'll post more on the reasons for my outlook, but I think the U.S. will avoid a double dip recession, and 2010 GDP growth will be in the 2% to 3% range.

The second question concerned the unemployment rate at the end of 2010 (December 2010).

Most poll participants (70%) are expecting the unemployment rate to be at or above 10% at the end of 2010. I think it might be close, but I agree with the majority on the unemployment rate (still double digits in Dec 2010). There will be a temporary positive impact from the 2010 Census, and I expect another stimulus package (labeled a "jobs package") to be announced in the next few months - and maybe that will push the rate down below double digits.

I'll have more in the next few days. Thanks again for participating! I hope most of us are too pessimistic.