Real Estate Stable In 2007
December 12th 2006- Donald Anthony has slashed the price on his four-bedroom, two-bathroom house by almost $80,000 — and added $40,000 worth of improvements, including a new kitchen and landscaping in the leafy yard.
He’s used three different agents. He’s listed the 1,800-square-foot home — an immaculate ranch on a quiet cul-de-sac — on for-sale-by-owner sites, in newspapers, on cable television and community site Craigslist. He or his agents have spent at least 50 idle afternoons hosting open-house events.
But the 74-year-old retired physicist cannot unload the house, now listed at $489,950 — well below the price of comparable homes in the fast-growing region between San Francisco and Sacramento.
“The buyers have vanished,” Anthony shrugged in front of new Shaker maple cabinets and never-used appliances. “If this doesn’t sell post haste, I’m going to bite the bullet and pull it off the market.”
If Anthony can’t wait another year or more, he might as well rip out the for-sale sign now.
Although few experts predict that home values will fall dramatically in 2007, many economists say that prices won’t improve for 12 to 18 months. And without the cushion of rising home equity — which softened the blow of high oil prices last year and kept consumers buying big-ticket items at a rapid clip — Americans may lose confidence in their finances, and the broader economy is likely to suffer.
Ambitious building booms in many markets in the past half-decade, combined with mortgage interest rates that have increased about 1 percent in the past year, have resulted in residential real estate stagnation. The gridlock defies conventional wisdom, stubbornly remaining neither a buyer’s nor a seller’s market.
“We are currently experiencing the worst of the market freeze, which is being exacerbated by the gap between the buyer’s desire for bargains and the seller’s fantasy of what they once thought their homes would be worth,” said Diane Swonk, chief economist for Chicago-based Mesirow Financial, who forecasts a rebound in early 2008. “The good news is that there are some signs of stabilization. The bad news is that a substantial backlog of unsold homes still exists.”
Global forces and U.S. monetary policies play important roles in the housing slowdown, which already appears to be depressing the national economy.
The newest forecast by Moody’s Economy.com, a private research firm, projected that the median sales price for an existing home will decline in 2007 by 3.6 percent — the first decline for an entire year in U.S. home prices since the Great Depression of the 1930s.
The Commerce Department reported Nov. 29 that gross domestic product grew at a 2.2 percent annual rate in the third quarter, down from 2.6 percent in the second quarter. The residential construction falloff subtracted 1.2 percent from growth, the department stated.
Peter Morici, business professor at the University of Maryland, said artificially low interest rates over the past half-decade encouraged China and other exporting nations to purchase 10-year bonds, which kept U.S. mortgage rates low and fueled the housing bubble — despite a gaping trade deficit that should have sapped investor confidence years ago.
“In order to play this ponzi scheme, the value of the homes had to go up faster than the economy grew and faster than people could service their debt. We’ve reached that limit,” Morci said. “The housing market sustained the economy at a time of very large trade deficits. It’s been a false prosperity.”
In addition to macroeconomic forces, regional U.S. housing markets faced particular challenges.
In expensive coastal cities, economists say, price appreciation hit a wall. San Francisco and Boston — where many investors enjoyed double-digit property gains in the late 1990s and the first half of this decade — have simply become unaffordable.
The number of Californians who could comfortably pay the mortgage on an entry-level home fell to 24 percent in the third quarter — down from 44 percent in 2003, according to the California Association of Realtors. The median price statewide was $563,190.
“I don’t see how the economy can continue with these prices,” said Stephen Levy, senior economist of the Center for Continuing Study of the California Economy.
Housing prices in New England grew an average of 10 percent per year from 2000 to 2005, compared with 8.3 percent for the nation as a whole.
But a forecast released Nov. 14 by the New England Economic Partnership, a nonprofit forecast organization with members are from private industry, government and academia, projects prices in New England will be flat through 2010, below the U.S. forecast of 2.1 percent growth per year. Housing prices in Massachusetts are expected to decline 9 percent through 2010.
“Areas along the coast of the nation and the large urban areas tend to see stronger price gains in housing upturns, and stronger declines in downturns,” said Celia Chen, a housing economist with Moody’s Economy.com in West Chester, Pa.
In Sun Belt havens such as San Diego, Las Vegas and Phoenix, overzealous construction resulted in a glut of new homes and condos. Real estate experts say sellers and developers there will struggle throughout 2007.
“We have to work off the inventory,” said Daniel Nussbaum, a licensed investment adviser and CEO of Calabasas-based TheUSARealty.com. “I honestly think we’re past the worst of it, but if you don’t take out your magnifying glass you might not notice.”
Florida will likely remain the toughest market for buyers and sellers.
Building frenzies in Miami, Orlando and the Caribbean coast resulted in a plethora of for-sale signs. Developers desperate to unload inventory offer free granite countertops, appliances and furniture — even cars, vacations and mortgage payments for up to six months.
Meanwhile, insurance companies dramatically raised premiums after Hurricane Katrina. Depending on where they live and their policies, Florida home owners may pay as much as 10 times more for flood and wind insurance than last year; premiums can exceed $30,000 per year on mansions. That’s caused monthly costs to skyrocket, pinching current owners and making it all but impossible for renters to buy.
Throughout Florida, 12,773 existing single-family homes were sold in October, down 22 percent from a year ago, according to the Florida Association of Realtors. Florida’s median price was unchanged at $242,500, but more than half of the urban areas posted declines. Around Fort Myers, the median price plunged 44 percent to $249,200 from October 2005.
Not everyone is pessimistic — even in beleaguered Florida.
Long-term demographic shifts from the Midwest and New England bode well for the notoriously boom-and-bust state, said Dave Denslow, professor of economics at the University of Florida. Florida, which gained 430,000 new residents in the past year, is a popular destination for Latin American immigrants and retirees from northern states, Canada and western Europe.
“People start thinking about buying a retirement home in their late 50s, and baby boomers are approaching that age,” Denslow said. “The demand for residential housing here is only going to get stronger through 2020.”
Meanwhile, back in Antioch, where Don Anthony is struggling, Zach and Katherine Chouteau are looking for a house or condo with a home office and room for twin Pug dogs.
They’d love to buy in Antioch, but the couple — who moved from suburban New York five years ago to start their own business — are reluctant to commit.
Like many shoppers, they’re discouraged by higher interest rates — and rampant appreciation in recent years and the perception that many San Francisco Bay Area owners have halcyon-day notions of multiple offers and bidding wars.
“It’s definitely a friendlier market than earlier this year, but not a dramatically cheaper one,” Zach Chouteau, 41, said. “People have gotten really spoiled by the rapidly escalating prices, and it seems like they’re in denial that things have leveled out. They’re just fishing for the best price.”
Luxury Home Values Reach Record Levels In California
November 27th 2006-The Los Angeles area remained the nation’s least affordable for house hunters in the third quarter, according to a survey released Monday, while another showed luxury home values making modest gains to record levels in three of the state’s major markets.
This is the eighth consecutive quarter that Los Angeles remained the hardest place to buy a house, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI).
In the Los Angeles-Long Beach-Glendale market only 1.8 percent of new and existing homes sold during the third quarter were affordable to those earning the area’s median family income of $56,200.
The median sales price of all homes sold in the area during the period was $523,000.
“It’s a very critical thing,” said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp. “In all the uproar of the slowdown in housing this has sort of gone into the back of the room and nobody is discussing it.”
The California Building Industry Association’s analysis of the index showed that affordability fell in 14 of the 28 California metro areas surveyed. In 20 metro areas less than 10 percent of the homes could be afforded by families earning the median income there.
“Despite all of the doom and gloom about housing prices dropping, affordability has improved only slightly and only in some parts of the state,” Robert Rivinius, the association’s president said in a statement.
Indianapolis maintained its position as the nation’s most affordable housing market for the fifth consecutive time.
There just under 86 percent of homes sold in the third quarter were affordable to families earning the median household income of $65,100.
The index tracks the change in value of the same pool of properties. In the Los Angeles area some homes in Calabasas, La Canada Flintridge, Encino, North Hollywood and Studio City are included in the pool.
“There is more inventory. Things that are not perfectly priced last a long time on the market. But we are definitely not seeing a bursting of a bubble people have been prepared for for two years,” said Katherine August-de Wilde, chief operating officer
Falling Behind On Your Mortgage?
November 20th 2006-
Question: How can I catch up on a mortgage payment? I have fallen behind and have no options, such as extension, refinance, deferral, debt consolidation loan, etc., available to me. Also, apparently, I am not allowed to pay partial payments to catch up on the payment. I have a job with available overtime, so I know I can make a little extra money this way, but I am also behind with other bills. Any advice? Thanks so much.
Answer: You and millions of other Americans are dealing with mortgage problems, and it is no surprise that costly mistakes are being made.
Media Scaring Consumers
November 17th 2006-
The 10-year Treasury failed again to break below the 4.53 percent bottom, a level tested again and again since September, so mortgages are stuck just above 6 percent.
This week’s test and failure was different from the prior ones: the other rallies were broken by surprisingly strong economic data, especially the last two monthly payroll reports. This week the bond market got exactly the bad news it was hoping for: huge drops in wholesale and consumer prices, an off-the-table report on new-home construction, and minimal up-ticks in retail sales and industrial output.
Background items offset some of the benefit of bad news: the Fed’s October minutes contained not a syllable about a rate cut, and instead unanimous concern for inflation. Also, some housing numbers hint that the worst is over, and the slowdown isn’t hurting the economy much, anyway. Purchase loan applications bottomed in late summer, un-sold inventories of homes are no longer rising, rapid household formation will support demand, and a retreat by builders is good news, not bad.
Those forces exert considerable buying pressure, which is protecting bonds and mortgages from what would otherwise be a bad upward pounding after three months of failed rallies. The next shot at lower won’t appear until Dec. 8, when we get November payrolls. Everyone in the bond market will, of course, hope that a couple of million people have been thrown out of work just in time for the holidays.
OK: now tie the inverted yield curve to mortgages and housing….
Every one of the catastrophic Housing Bubble stories has the pending reset of ARM rates as a centerpiece, and they are wrong. We might have a recession, it might be led by housing, and something awful might happen to housing prices, but the reset of rates on ordinary ARMs won’t be the cause.
ARM rates are resetting, as all indices sooner or later follow the Fed upward. The quick-movers, LIBOR and T-bills, have been above 5 percent for months; now even the slow-movers, COFI and MTA, are up to 4.32 percent and 5.03 percent, respectively, COFI still with a ways to go. Add typical margins of 2.25 percent to 2.75 percent, and there’s a trillion or two worth of these poor ideas headed to 7.5 percent in the next three years.
At the ARM low from ‘02-’04, consumers elbowed at the teaser-rate trough for 5-year hybrid ARMs near 4 percent, so the coming reset will be an average 3.5 percent rate increase — depending on caps, in two successive adjustments, or all in one whack.
Three-point-five percent is a big whack, but a disaster only for the handful who thought that 4 percent was a lifetime contract. A 3.5 percent rise in rate translates to about a 25 percent increase in p&i payment, tax deductible, t&i unchanged — merely annoying to most borrowers, who knew the initial deal was artificial. Note also that average mortgage balances have not risen remotely as fast as home prices; payments will rise, but wealth rose faster.
Missing in the Bubble Apocalypse: nobody has to suffer the 3.5 percent reset! Because of the negative curve, anybody can refinance today to a rate close to 6 percent without loan fees. That’s only a two-point reset, a 15 percent rise in p&i cost. As a recessionary drag on the economy … peanuts.
If fixed mortgage rates were today where they were in the ’90s, up at 8 percent when the Fed was at 5.25 percent, then this generation might learn the real hazards of ARMs. Not this time, and the borrowers don’t even know how lucky they’ve been.
Those forces exert considerable buying pressure, which is protecting bonds and mortgages from what would otherwise be a bad upward pounding after three months of failed rallies. The next shot at lower won’t appear until Dec. 8, when we get November payrolls. Everyone in the bond market will, of course, hope that a couple of million people have been thrown out of work just in time for the holidays.
OK: now tie the inverted yield curve to mortgages and housing….
Every one of the catastrophic Housing Bubble stories has the pending reset of ARM rates as a centerpiece, and they are wrong. We might have a recession, it might be led by housing, and something awful might happen to housing prices, but the reset of rates on ordinary ARMs won’t be the cause.
ARM rates are resetting, as all indices sooner or later follow the Fed upward. The quick-movers, LIBOR and T-bills, have been above 5 percent for months; now even the slow-movers, COFI and MTA, are up to 4.32 percent and 5.03 percent, respectively, COFI still with a ways to go. Add typical margins of 2.25 percent to 2.75 percent, and there’s a trillion or two worth of these poor ideas headed to 7.5 percent in the next three years.
At the ARM low from ‘02-’04, consumers elbowed at the teaser-rate trough for 5-year hybrid ARMs near 4 percent, so the coming reset will be an average 3.5 percent rate increase — depending on caps, in two successive adjustments, or all in one whack.
Three-point-five percent is a big whack, but a disaster only for the handful who thought that 4 percent was a lifetime contract. A 3.5 percent rise in rate translates to about a 25 percent increase in p&i payment, tax deductible, t&i unchanged — merely annoying to most borrowers, who knew the initial deal was artificial. Note also that average mortgage balances have not risen remotely as fast as home prices; payments will rise, but wealth rose faster.
Missing in the Bubble Apocalypse: nobody has to suffer the 3.5 percent reset! Because of the negative curve, anybody can refinance today to a rate close to 6 percent without loan fees. That’s only a two-point reset, a 15 percent rise in p&i cost. As a recessionary drag on the economy … peanuts.
If fixed mortgage rates were today where they were in the ’90s, up at 8 percent when the Fed was at 5.25 percent, then this generation might learn the real hazards of ARMs. Not this time, and the borrowers don’t even know how lucky they’ve been.
Important To Check Your Credit Before Applying For Mortgage
- Equifax Information Services, P.O. Box 740241, Atlanta, Ga. 30374, 800-685-1111, www.equifax.com.
- Experian, P.O. Box 2104, Allen, Texas 75013, 888-397-3642, www.experian.com.
- TransUnion Corp., P.O. Box 390, Springfield, Pa. 19064, 800-916-8800, www.transunion.com.
100% Mortgage Financing – Smarter Than Paying Private Mortgage Insurance
November 16th 2006- Ideally, traditional mortgage lenders want new homebuyers to have a 20% down payment when purchasing a new home. Thus, if purchasing a $200,000 home, you should be prepared to have $40,000 as a down payment.
Unfortunately, many people do not have this kind of money lying around. For this matter, private mortgage insurance (PMI) was created as a way for mortgage companies to recoup their money if a homeowner defaults on the loan. There are various loans available to assist people with down payments. In some instances, homeowners can obtain 100% financing, and avoid PMI
What is Private Mortgage Insurance?
Because Americans are earning less money, and home prices are steadily increasing, the majority of the population is unable to save the recommended down payment of 20%. In order to make owning a home possible, mortgage companies created a particular mortgage insurance, (PMI), for people with less than 20% to put down on a home. This insurance protects the lender if you default on the mortgage.
How to Avoid Paying Private Mortgage Insurance
On average, PMI may increase your mortgage payment by $100 – sometimes less, sometimes more. However, there are ways to avoid paying this additional insurance. The obvious involves having at least 20% as a down payment. If this is not an option, homeowner may agree to a higher interest rate. Another tactic entails getting approved for 100% financing.
How Does 100% Mortgage Financing Work?
100% mortgage financing makes it possible to buy a home with no money down. Also referred to as a piggyback loan or 80/20 mortgage loan, 100% mortgage financing involves obtaining a first mortgage for 80% of the home cost, and a second mortgage, or home equity loan, for 20% of the home cost. Together, the first and second mortgage allows a home purchase with no money down, and no private mortgage insurance.
www.mortgagerefinanceinformation.tv
Real Estate Bargains
November 14th 2006-Sunday afternoon, Terry Johnson walked out of a packed hotel ballroom on his way to becoming a homeowner, thanks to a $43,000 winning bid on a 1,064-square-foot home in Fort Worth.The whole process took less than two hours.
“It’s really smart,” the disabled Fort Worth veteran said after signing some papers and handing over a deposit. “You get a lot better price on a home.”
Mr. Johnson was one of about 250 people who gathered at the DFW Marriott hotel to bid on 53 foreclosed homes that were auctioned by Dallas-based Hudson & Marshall.
Once the exclusive domain of real estate insiders, auctions are attracting an increasing number of bargain-hungry homebuyers who have never bid for anything, much less a house.
But interest is rising because of the soaring number of foreclosed homes, both nationwide and in Texas.
Foreclosed properties now account for more than a quarter of the preowned houses on sale in the Dallas-Fort Worth area. Texas ranks second in the nation in total foreclosure filings.
With that kind of volume, some people’s misfortunes are quickly becoming others’ opportunities.
“If you miss a deal, there’s another one coming,” said Ed Massey, a 40-year-old security guard for the Fort Worth Independent School District who came to the auction to bid on a house in Crowley.
“The economy is down, and since it’s down, it’s a buyers’ market.”
Sunday’s auction was the fifth one Hudson & Marshall has held in Texas in the last five days. The company puts on a series of sales in Texas nearly every quarter.
The company sells homes that are owned by banks and asset management companies that take possession after owners default on their mortgages.
Auctions put on by private companies are more accessible to people outside the real estate industry than foreclosure sales by the government. To explain the bidding process, Hudson & Marshall provided easy-to-understand information and a list of the homes on its Web site and in brochures.
Setting the mood
Before the auction began, two giant screens at the front of the ballroom gave out instructions while a musician nearby played soothing songs.
Bidders began filing in more than an hour beforehand, and some helped themselves to free coffee and soft drinks at the back of the room.
During the sale, pictures of the homes flashed on screens to accompany the auctioneer, who bellowed out numbers in rat-a-tat fashion from behind a wooden lectern.
“I’m at 19-5,” he said as bidders raised their hands or white cards into the air. “Anyone else at 21? Giving it away at 21.”
Men dressed in white shirts and green striped ties roamed the aisles looking for bids. Bidders had to think fast, as most homes sold in 2 to 2 1/2 minutes.
Fixer-uppers
The homes, many of which need repairs, were all in the Dallas-Fort Worth area, including cities such as Garland, DeSoto and Alvarado. The homes were sold “as is,” so buyers were urged to visit the properties beforehand.
All successful bidders had to write a check on the spot for 5 percent of the contract price or $2,500, whichever was greater. Then they have to close their deals in 30 days and pay a 5 percent fee called a buyer’s premium over the price of the house.
In return, buyers receive an insurable title with no back taxes or liens owed on the property.
“We market heavily,” said Dave Webb, Hudson & Marshall’s co-owner. “Both sellers and buyers are becoming more familiar with the auction process.”
The company has sold more than 40,000 foreclosed homes for banks in the last eight years. With a weakening housing market and higher interest rates, “there are quite a few foreclosures in the pipeline coming down,” Mr. Webb said.
Buying a foreclosed home doesn’t always mean you’re getting a deal.
Last year, David and Luz Lozano of Oak Cliff sold a house they had bought at a courthouse auction. It took them two years to fix up the property, and thieves broke into the house three times. They wound up losing a little money on it.
But that didn’t deter them. At Sunday’s sale, they were planning to bid on a house they would like to move into.
“Every house needs work,” Mr. Lozano said.
Many bidders such as Butch Phillips viewed the auction as a learning experience.
The 44-year-old contractor from Peeltown in Kaufman County has spent years fixing up houses that others have bought at foreclosure auctions.
On Sunday, he gave up an afternoon of watching football to see if he could find one for himself.
Two weeks ago, he learned about the auction after seeing a sign on a home.
“It makes me nervous,” he said about bidding on a house he hasn’t seen. “But there’s some good deals.”
www.mortgagerefinanceinformation.tv
Home Bargains
November 13th 2006-Sunday afternoon, Terry Johnson walked out of a packed hotel ballroom on his way to becoming a homeowner, thanks to a $43,000 winning bid on a 1,064-square-foot home in Fort Worth.The whole process took less than two hours.
“It’s really smart,” the disabled Fort Worth veteran said after signing some papers and handing over a deposit. “You get a lot better price on a home.”
Mr. Johnson was one of about 250 people who gathered at the DFW Marriott hotel to bid on 53 foreclosed homes that were auctioned by Dallas-based Hudson & Marshall.
Once the exclusive domain of real estate insiders, auctions are attracting an increasing number of bargain-hungry homebuyers who have never bid for anything, much less a house.
But interest is rising because of the soaring number of foreclosed homes, both nationwide and in Texas.
Foreclosed properties now account for more than a quarter of the preowned houses on sale in the Dallas-Fort Worth area. Texas ranks second in the nation in total foreclosure filings.
With that kind of volume, some people’s misfortunes are quickly becoming others’ opportunities.
“If you miss a deal, there’s another one coming,” said Ed Massey, a 40-year-old security guard for the Fort Worth Independent School District who came to the auction to bid on a house in Crowley.
“The economy is down, and since it’s down, it’s a buyers’ market.”
Sunday’s auction was the fifth one Hudson & Marshall has held in Texas in the last five days. The company puts on a series of sales in Texas nearly every quarter.
The company sells homes that are owned by banks and asset management companies that take possession after owners default on their mortgages.
Auctions put on by private companies are more accessible to people outside the real estate industry than foreclosure sales by the government. To explain the bidding process, Hudson & Marshall provided easy-to-understand information and a list of the homes on its Web site and in brochures.
Setting the mood
Before the auction began, two giant screens at the front of the ballroom gave out instructions while a musician nearby played soothing songs.
Bidders began filing in more than an hour beforehand, and some helped themselves to free coffee and soft drinks at the back of the room.
During the sale, pictures of the homes flashed on screens to accompany the auctioneer, who bellowed out numbers in rat-a-tat fashion from behind a wooden lectern.
“I’m at 19-5,” he said as bidders raised their hands or white cards into the air. “Anyone else at 21? Giving it away at 21.”
Men dressed in white shirts and green striped ties roamed the aisles looking for bids. Bidders had to think fast, as most homes sold in 2 to 2 1/2 minutes.
Fixer-uppers
The homes, many of which need repairs, were all in the Dallas-Fort Worth area, including cities such as Garland, DeSoto and Alvarado. The homes were sold “as is,” so buyers were urged to visit the properties beforehand.
All successful bidders had to write a check on the spot for 5 percent of the contract price or $2,500, whichever was greater. Then they have to close their deals in 30 days and pay a 5 percent fee called a buyer’s premium over the price of the house.
In return, buyers receive an insurable title with no back taxes or liens owed on the property.
“We market heavily,” said Dave Webb, Hudson & Marshall’s co-owner. “Both sellers and buyers are becoming more familiar with the auction process.”
The company has sold more than 40,000 foreclosed homes for banks in the last eight years. With a weakening housing market and higher interest rates, “there are quite a few foreclosures in the pipeline coming down,” Mr. Webb said.
Buying a foreclosed home doesn’t always mean you’re getting a deal.
Last year, David and Luz Lozano of Oak Cliff sold a house they had bought at a courthouse auction. It took them two years to fix up the property, and thieves broke into the house three times. They wound up losing a little money on it.
But that didn’t deter them. At Sunday’s sale, they were planning to bid on a house they would like to move into.
“Every house needs work,” Mr. Lozano said.
Many bidders such as Butch Phillips viewed the auction as a learning experience.
The 44-year-old contractor from Peeltown in Kaufman County has spent years fixing up houses that others have bought at foreclosure auctions.
On Sunday, he gave up an afternoon of watching football to see if he could find one for himself.
Two weeks ago, he learned about the auction after seeing a sign on a home.
“It makes me nervous,” he said about bidding on a house he hasn’t seen. “But there’s some good deals.”
Real Estate Strong
November 10th 2006- Judging by recent profit figures, many of the biggest commercial real estate companies have been unscathed by the housing market slowdown.A strong job market and increase in corporate outsourcing have bolstered real estate services revenues, enough to offset a slower pace of growth in investment sales that has set in since the booming recent years when offshore investors, real estate investment trusts and pension investors flooded the market.
JMP Securities Analyst William Marks said that while all sectors of commercial real estate are performing well, leasing activity and property management in particular are surging ahead. But investment sales are indeed slowing.
“Only so much real estate can change hands,” he said, noting that the volume of transactions had been so high in past years that the rate would be difficult to maintain.
The market for leasing office space has been helped by the strength of the job market. In October, the jobless rate fell to the lowest level in five years, and a low unemployment rate boosts demand for office space.
Grubb & Ellis issued a report in late September that said any effect from the housing slowdown on the market for office space would be modest and more muted than the pullback the sector after the technology boom.
And as the industry sustains its strength, the market leader in real estate services, CB Richard Ellis Group Inc., said Oct. 31 it would buy rival Trammell Crow Co. in a deal that would increase its dominance. The acquisition, if completed as planned, would give CB Richard Ellis 10.5 percent of the market, a rise from its current share of 7.9 percent, according to a research note by JPMorgan Analyst Michael J. Fox.
Analysts have cited Trammell Crow’s strength in providing outsourcing services _ such as property or project management and lease administration _ as making the deal a good combination. It would also help diversify CB Richard Ellis’s revenue away from its reliance on leasing and sales revenue, which in the third quarter produced a combined 74 percent of the company’s revenue.
“As a publicly traded company, it can help smooth out the bumps in revenue,” said Chief Executive Bill Goade of Cresa Partners, a Boston-based corporate real estate advisory firm.
CB Richard Ellis CEO Brett White said revenue from outsourcing would rise to 18 percent from 8 percent under the deal. “This is the part of that strategy we’ve talked with many of you about in the past of continuing to diersify the revenue base of the company going forward,” White said in a conference call announcing the transaction. “And this transaction will very much help that.”
In the third quarter, CB Richard Ellis posted 62 percent higher profit, and Trammell Crow said income rose 14 percent, due mostly to gains from property management.
Fox wrote that there is substantial opportunity for growth in outsourcing services. “Higher institutional investor ownership of real estate should continue to drive demand for services and enable investment sales to maintain solid growth,” Fox wrote.
He warned that interest rates could hurt the industry, though.
“If rising rates cause the economy to slow more than we anticipate or fall into a recession, employment trends will likely soften and leasing commissions could be below our expectations,” he wrote.
Meanwhile, in the residential sector, Bloomfield Hills, Mich.-based Pulte Homes Inc., Miami-based Lennar Corp. and Dallas-based Centex Corp. all reported lower profit in the third quarter. D.R. Horton Inc. reported a 61 percent rise in profit in the third quarter.
Boston Real Estate Strong
November 9th 2006- The economic momentum evident 12 months ago is being sustained by continued job growth in professional and business services, which expanded by two percent in the past year. This year at the three-quarter mark, the Greater Boston office market has absorbed a total 2.9 million square feet of office space. The suburban industrial market is showing signs of a turnaround, having posted 1.6 million square feet of positive absorption nine months into 2006. The suburban R&D market was substantially weaker, however, with only 57,000 square feet of net absorption so far this year, although the third quarter did yield a promising 357,300 square feet in occupancy gains.
Office Market
Greater Boston employment data for the last twelve months through September continued to be encouraging, gaining 2.2% in core office-using employment and 21,000 new jobs overall. Office net absorption, promising in the first quarter, paused in the second, but regained momentum in the third quarter and totaled nearly 1.4 million square feet. This was the thirteenth straight quarter of occupancy gains. At the three-quarter mark Boston, Cambridge and the suburbs combined to absorb 2.9 million square feet. Availability dropped to 17.1%, down from 19.1% 12 months ago, and direct vacancy has dropped to 12% this year. Both are approaching the long-term regional averages of 14% and 9%, respectively. Average asking rents have increased nearly seven percent this year. Rents in core segments continue to escalate rapidly especially in premier high-rise towers in Boston and in the trophy sector in Waltham. Elsewhere rent growth has been uneven and dependent on availability and demand in specific buildings and submarkets.
BOSTON: Low vacancy and escalating rents.
Nine months into the year, 268,786 square feet have been absorbed, but this is behind last year’s record breaking level. Nevertheless, the Financial District and South Boston submarkets have absorbed 513,222 and 159,643 square feet, respectively. Eaton Vance and McCarter & English leased premium tower space, driving occupancy gains in the Financial District, but negative absorption from the Gillette sublease space which hit the market at the Prudential Center in the Back Bay offset these positives. While overall availability has been steady this year, the vacancy rate has dropped to 8.8%, a decline of 1.9% in the last 12 months. During this time span, average asking rents have increased 8%, surpassing the $36 per square foot barrier for the first time since 2003. The pace of current rent growth suggests that the average asking rent will break $40 per square foot in 2007. In 12 months, Class A and B average asking rents at $43.68 and $29.41 per square foot, respectively, are both up nearly $3.00 per square foot. Strong leasing activity in Boston’s premium towers has dropped vacancy to 6%, the lowest since 2002. Continuing economic and job growth and requirements of 4.2 million square feet, with ten firms seeking more than 100,000 square feet, are intensifying discussion of new office construction starts.
CAMBRIDGE
Nine months into the year, the office and lab market absorption is running slightly ahead of last year’s pace. At this time twelve months ago 738,410 square feet had been absorbed – this year 781,322 square feet has been absorbed. For the second year in a row, the market is on track to exceed 1.0 million square feet of net absorption, more than twice the 20-year average of 385,000 square feet. In nearly 5 years, there has been a 3.4 million square foot gain in occupancy. Availability has dropped to 11.4% and direct vacancy is 7.5%, a five-year low. Sixty percent of absorption or 469,122 square feet occurred in the lab segment, dropping vacancy to just 4.4%. This has driven lab rents upward to the $48-54 per square foot NNN range. Office availability is 12.3% and vacancy is 9.1%. Office average asking rent is now $30.61 per square foot gross, a four-year high. Given 1.6 million square feet in space requirements and the absence of new office construction starts, upward pressure on rents is a certainty. In response to continuing demand for lab space, a new speculative 430,000-square-foot lab facility has been started in East Cambridge.
SUBURBS
Availability at 20.8% has dropped by 8.7 percentage points in the last three years. For 12 quarters, availability has steadily declined from the 29.4% peak in the third quarter of 2003. Direct vacancy is now 15.4%. In three years, 5.9 million square feet have been absorbed, including this year’s total of 1.9 million square feet to date. All seven submarkets registered occupancy gains in the third quarter, but the Mass Pike corridor along Routes 128 and 495 accounted for half of total suburban net absorption.
This year Waltham on Route 128 has posted 486,000 square feet of absorption and Westborough 273,000 square feet, from leases by Bose, ACMI and Akibia. Other significant suburban leases were by Stratus Technology in Maynard and VistaPrint in Lexington. Delivery of 450,000 square feet at Reservoir Woods in Waltham, nearly all preleased, along with several other leases in the fourth quarter pipeline promise to propel suburban net absorption by yearend to its highest level in six years. 128/Mass Pike has the lowest suburban availability rate at 13.7% and is now close to equilibrium. Twelve months ago, asking rents in premier Waltham Class A properties were $30 to $35 per square foot, but plummeting vacancy has now pushed them to $34 to $40 per square foot.
This has accelerated developer planning for new speculative construction starts in Waltham. Given the lead time necessary to deliver new product, the next few projects out of the ground should benefit from continued rent appreciation. The availability of contiguous blocks of space larger than 100,000 square feet has been reduced to just one in 128/Mass Pike, and two in 495/Mass Pike, but more than a dozen are available in other submarkets, where new construction is not yet in the cards. Average suburban rents at $20.00 per square foot have increased by $1.60 or about 9% in the last 18 months, but in core markets such as Framingham and Natick that are posting an 11.9% availability rate, asking rents in premier Class A buildings have risen to $23 to $26 per square foot. As availability declines, areas farther west in Marlborough and Westborough and to the north in Burlington should be next to see rapid rent increases.
R&D MARKET
R&D absorption was 357,334 square feet in the quarter, but only 56,939 square feet year-to-date. The market still lacks consistency, with absorption up in one quarter and down the next. Occupancy has improved by only 897,000 square feet in the last 21 months, when availability peaked at 31.3% at the end of 2004. Since then availability has improved by 4.9 percentage points to 26.4% but it has changed little in the 12 months. Positive third quarter net absorption was driven by leases in the 495/South market where 80,000 square feet was leased by AZZ in Medway and Thermo Electron leased 61,926 square feet in Franklin.
In the Northwest market, Nuvera Fuel Cells leased 110,000 square feet in Billerica. Average asking rents at $10.36 per square foot NNN were up slightly, a reflection of additional higher priced inventory being offered on the market. A recent state employment survey on demand in the technology sector reports a 13% increase in job vacancies in the last 12 months. Eventually, this should convert to absorption in the R&D sector, but for now there are only 13 requirements totaling 439,000 square feet. We expect little change in the R&D market over the near term with rent appreciation unlikely, given significant availability and continuing weak demand.
INDUSTRIAL MARKET
Year-to-date net absorption was positive at 1,598,529 square feet. This is the high-water mark since 2000 and the first time since then that the industrial market has posted three consecutive quarters of positive absorption. This is a departure from the seesaw pattern of positive absorption for one or two quarters offset by negative absorption in the next quarter. In the third quarter, 1.1 million square feet of positive absorption was achieved, dropping availability this year by nearly three percentage points to 21.3%. Substantial net absorption ranging from 390,000 to 825,000 square feet occurred in 495/South, 495/Mass Pike and in the North markets.
A number of large leasing transactions accounted for much of the improvement this year including 335,000 square feet by Autoparts International in Norton, 154,700 square feet by Cytyc in Marlborough, 103,900 square feet by National Lumber and 80,700 square feet by Trelleboy, Emerson & Cumming, both in Mansfield, along with 71,300 square feet by Draper Labs in Wilmington. Industrial rents at $6.09 per square foot NNN have increased approximately four percent this year. We expect that more than a half million square feet in leases will be signed in the 495/South market in the fourth quarter, resulting in continued improvement in the industrial sector for the remainder of this year.
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