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EJ
10-27-06, 08:55 AM
Housing Decline Sparks Slowdown In Construction (registration) (http://online.wsj.com/article/SB116191573939805588.html?mod=djemalert)
October 27, 2006 (ALEX FRANGOS - Wall Street Journal)

Store, Mall Demand Drops As Fewer Homes Are Built; Weighing Economic Risks

The unexpectedly rapid decline of the nation's housing market will mean an overall drop in construction spending next year, with spillover effects in areas such as job growth and real-estate development.

In a closely watched report expected to be released today, McGraw-Hill Construction will forecast the first decline in overall construction spending since 1991. The company says the value of new construction will decline 1% in 2007 to $668 billion, compared with an expected rise of 1% for 2006 and a 12% increase in 2005. McGraw-Hill said the anticipated decline was due mostly to a 5% fall in construction of single-family homes. But the overall drop also reflects a 3% slide in construction of stores and shopping centers, a component closely tied to population growth and home-building trends.

"Single-family housing has fallen more steeply than what we had anticipated and the correction is taking place faster," says Robert Murray, vice president at McGraw-Hill Construction, a unit of McGraw-Hill Cos. The industry "no longer has single-family housing to bolster total construction."


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AntiSpin: Another "more steeply than what we had anticipated and the correction is taking place faster" report, as I mentioned yesterday. Expect more of the "unexpected."

One statistic we've been tracking is that retail space has increased at more or less the same rate as population growth until 1995 when it began to grow at a much faster pace.

According to Sprawl-Busters (http://www.sprawl-busters.com/caseagainstsprawl.html), the US has 20 square feet of retail space for every man, woman and child in America, up from 14.7 s.f. per person in 1986. At the same time, sales via the Internet have grown from zero to 2.2% of all retail sales, but continues to grow by around 20% per year. "The most recent Census Bureau data (http://www.incontext.indiana.edu/2006/february/5.html) for the nation on e-commerce comes from the Monthly Retail Trade Survey and is for the third quarter of 2005. Going into the holiday season, there were $962.7 billion in retail sales, and e-commerce sales comprised 2.2 percent of total sales."

Reasonable to expect that in the coming recession, in-store sales will be hit disproportionately relative to eCommerce sales, which tend to offer better discounts and convenience to consumers with more money to spend. Expect a rapid decrease in retail construction and for residential construction to decline in line with the ten to 15 year correction outlined here (http://www.itulip.com/housingbubblecorrection.htm).

jk
10-27-06, 09:17 AM
Reasonable to expect that in the coming recession, in-store sales will be hit disproportionately relative to eCommerce sales, which tend to offer better discounts and convenience to consumers with more money to spend.

the achilles heel of ecommerce is the cost of delivery. if oil moves up, fuel surcharges on shipping may eat into the value of lower prices.

akrowne
10-27-06, 02:59 PM
Get ready to dump/short your REITs. Commercial is no safe haven; it always follows residential.

SeanO
10-27-06, 08:12 PM
Get ready to dump/short your REITs. Commercial is no safe haven; it always follows residential.

While I don't completely disagree, do keep in mind that commercial hasn't had quite the same run up as residential. Residential appraisals are primarily based on recent sales, commercial appraisals are typically based on cash flow.

At commercial RE's peak it still offered a 5% or better return after expenses on even the best properties (lesser properties get higher returns). Those rates have been creeping back up (moving prices down) in an orderly fashion. Inventory of vacant space is relatively low, and in many markets rents are still at historically low levels. If/when we do have a Poom, rents will ultimately increase resulting in improving returns.

Bottom line - IMHO commercial will see a correction, but nothing like the one we'll see in residential, and the upside in a Poom environment is likely to be better then other sectors given the right property.

spunky
10-28-06, 12:57 AM
Yep, this is going to trickle down alot. Here in my part of the midwest , we didnt see the ridiculous run up in home prices you have seen in certain areas of the country . The Indy metro area allready has alot of retail/apartment space availble.

Curious to see what this is going to do to illegals immigration/ workers and the resulting joblessess ( increased crime ??? ) . Espically if the dems can push thru a bill to raise the minimum wage.


Japanese real estate should be on the rise, mabye a REIT in that direction , no ??????

Uncle Jack
10-29-06, 05:51 PM
Looks like somebody has some 'splainin' to do. Statistical mismeasurement is going to bring the already dismal GDP reading of 1.6% for the 2nd Q down to 0.9%. Here's the link and the quote:

<a href="http://www.bloomberg.com/apps/news?pid=newsarchive&sid=alZ83kYOa2IA">U.S. Statistical Fluke Exaggerated Growth, Will Be Reversed </a><blockquote>Oct. 27 (Bloomberg) -- An unexpected increase in auto production last quarter was a statistical fluke that will be reversed, making current U.S. economic growth even weaker, according to a former Commerce Department economist.

Last quarter's annualized 26 percent increase in motor vehicle production shocked Joe Carson, now director of economic research at AllianceBernstein LP in New York. Without the gain, the economy would have grown at an annual rate of 0.9 percent, not the 1.6 percent the Commerce Department reported today.</blockquote>