For the week ending 3/16/2012:
On the overall economy-
Expect retail sales to grow by 6% this year, building on solid job creation and stronger-than-expected store sales in January and February. That’s a bit slower than last year, but in keeping with the slowly expanding economy. Gasoline prices are still a bit of a wild card, of course, but a strong start to the year, thanks in part to the unseasonably mild weather, is encouraging to retailers. With firms hiring more workers these days, they’ll soon need more offices to put them in. Strong employment gains in the service sector are reviving demand for office space, though the supply will remain at high levels until next year. For now, tenants still have good bargaining power, but the window is closing. The national vacancy rate, now 17.3%, will decline to about 16% by year-end. Office rents are firming fastest in Midtown Manhattan and San Francisco. Washington, D.C., is strong, too, but the city has added 2.9 million square feet of new space in the past 12 months, which softened rates a bit late last year. Among other cities on the rebound: Seattle; Raleigh, N.C.; Houston, Dallas and Austin, Texas; Denver; Salt Lake City. All have a strong tech or energy presence.
So why aren’t Federal Reserve officials more worried about inflation? Rising gasoline prices fueled a 0.4% increase in February’s Consumer Price Index. And they’ll go higher still, with the national average rising well above $4 a gallon during the peak summer driving months, before decelerating after Labor Day. Bernanke & Co. see the pace of gasoline price hikes as relatively gradual…
at about $3.80 a gallon now, the price is up 10% in the past month. One year ago however, prices soared 50% in the first quarter, followed by a 31% gain in the second. We know…small consolation when you’re standing at the gas pump.
Federal spending cuts will leave some gaping holes in state budgets… As much as $24 billion in 2013 and somewhat north of $500 billion by 2020 as grants dry up in the push to cut the federal deficit. States must balance budgets every year, unlike Washington, so governors won’t be able to postpone the pain. Look for widespread cuts…grants for sewers and clean water, federal funding for airport upgrades plus home heating help and other aid for folks with low incomes. Grants to help community colleges, too, along with programs for first responders. Many states have limited options. They’ve already raised taxes and fees, reduced the public workforce and made the easy cuts to deal with budget shortfalls.
Calif. will see more businesses relocate to other states this year, chased out by high taxes, strict regulations and a stubbornly poor state economy. As many as 300 firms may leave on top of last year’s approximately 250 departures. Texas, Utah, Nev. and Ariz. are prime beneficiaries of the moves. Texas, for example, charges neither a personal nor a corporate income tax, while Calif.’s personal income tax is among the highest in the U.S. Its corporate tax…eighth highest. And though Calif. Gov. Jerry Brown gets credit for vetoing new regs, business owners say that onerous environmental and workplace rules keep growing. At 10.9%, the state’s jobless rate is 2.6 points above the U.S. average, and that gap will continue. Departing firms spell up to 100,000 job losses this year.
On Housing:
So why aren’t Federal Reserve officials more worried about inflation? Rising gasoline prices fueled a 0.4% increase in February’s Consumer Price Index. And they’ll go higher still, with the national average rising well above $4 a gallon during the peak summer driving months, before decelerating after Labor Day. Bernanke & Co. see the pace of gasoline price hikes as relatively gradual…
at about $3.80 a gallon now, the price is up 10% in the past month. One year ago however, prices soared 50% in the first quarter, followed by a 31% gain in the second. We know…small consolation when you’re standing at the gas pump.
Federal spending cuts will leave some gaping holes in state budgets… As much as $24 billion in 2013 and somewhat north of $500 billion by 2020 as grants dry up in the push to cut the federal deficit. States must balance budgets every year, unlike Washington, so governors won’t be able to postpone the pain. Look for widespread cuts…grants for sewers and clean water, federal funding for airport upgrades plus home heating help and other aid for folks with low incomes. Grants to help community colleges, too, along with programs for first responders. Many states have limited options. They’ve already raised taxes and fees, reduced the public workforce and made the easy cuts to deal with budget shortfalls.
Calif. will see more businesses relocate to other states this year, chased out by high taxes, strict regulations and a stubbornly poor state economy. As many as 300 firms may leave on top of last year’s approximately 250 departures. Texas, Utah, Nev. and Ariz. are prime beneficiaries of the moves. Texas, for example, charges neither a personal nor a corporate income tax, while Calif.’s personal income tax is among the highest in the U.S. Its corporate tax…eighth highest. And though Calif. Gov. Jerry Brown gets credit for vetoing new regs, business owners say that onerous environmental and workplace rules keep growing. At 10.9%, the state’s jobless rate is 2.6 points above the U.S. average, and that gap will continue. Departing firms spell up to 100,000 job losses this year.
On Housing:
Home prices are on the rise in most states. In 38 states, prices are above early-2011 lows. In 30 of them…more than two quarters of growth. But the national average hasn’t hit bottom. Over the next few months, it’ll drop another 2% or so before finally starting to head up later this year.
Five states are a drag on the market: Ariz., Calif., Fla., Mich. and Nev., a handful that suffered the greatest declines from peak prices and are home to 46% of all foreclosures in the country.
What’s the key to a speedier recovery? How a state handles foreclosures. In 24 states, judicial reviews clog the pipeline. Those where a judge must sign off on the deals have 2.6 times as many homes being foreclosed on…many blighted and vacant…depressing the value of neighboring real estate. In states with no reviews, three times as many foreclosure sales occurred in Jan.
Where turnaround times are shorter…Home prices are starting to tick higher. In Del., where the time between delinquency and foreclosure averages 106 days, home prices rose by 0.6% in the fourth quarter of last year. The pipeline is even shorter in Texas…a mere 90 days. Prices there climbed 1.2% in the fourth quarter of 2011. In N.Y., however, where judicial reviews stretch the typical foreclosure to a whopping 1,019 days, prices fell 1% that quarter. Even where the overhang of foreclosures is huge, there’s a big difference. Compare what’s happening in Fla. and Ariz. It takes an average of 806 days to complete foreclosure in the Sunshine State, which requires a judge’s approval.
In the Grand Canyon State, which doesn’t, it takes less than 200 days. As a result, Ariz.’s market is turning the corner. Phoenix home prices, for example, gained 2.7% in the fourth quarter of 2011, after plunging a staggering 55% from the 2006 peak. In Fla., where prices plummeted by a similar percentage, the trend is still down.
Fla. is trying to cut the damaging delays with legislation to let lien holders request an expedited process. But it appears the move will be put off until next year. Other states are headed in the opposite direction, imposing requirements for mediation between homeowners and lenders, adding more months to delays.
Nationally, there’s some movement to help clear excess inventory. Lenders’ recent agreement with state attorneys general will provide relief for about 500,000 homeowners, keeping many of them from going into foreclosure. And a pilot program at Fannie Mae to sell off foreclosed homes in bulk
will help. Look for Fannie to expand it and for other mortgage holders to follow suit. Still, the number of foreclosures nationwide will continue to climb this year.
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