Monday, February 18, 2008

Commercial Real Estate - 'Everything Has Gone Quiet'

From the Sacramento Bee:

Thelma Pugh of North Highlands came to rely on home equity as a cushion. She and her husband took out a $25,000 line of credit a year and a half ago from Countrywide Financial Corp. They've used about $9,000, mostly to pay for home repairs and – when her husband was hospitalized recently – to pay some bills. "It was like a lifeline," she said. "If I couldn't make ends meet, I had this."

That lifeline was just cut off. The Pughs were among 122,000 Countrywide customers recently notified that, because of vanishing equity, they no longer can tap into their lines of credit.
From the Auburn Journal:
The average sales prices of Auburn and Newcastle homes decreased from $502,510 last year to $476,493 this year, according to a January homes sales report from the Placer County Association of Realtors. That figure means the market is beginning to balance, according to Joe Newton, president of the Placer County Association of Realtors. “Prices are starting to level out,” Newton said. “Houses are a little more affordable. Couple that with the lending side and interest rates being down makes it for a very good time to consider buying.”
From USA Today:
David Brown, manager of the Sacramento and Yolo County, Calif., mosquito-control office, says growing concern over the mosquito-borne West Nile virus is prompting expanded efforts to identify problem pools...Sacramento's mosquito-control operation has asked the Sacramento Association of Realtors for a list of vacant homes with swimming pools. Since May, 400 pools have been reported.
From the Sacramento Business Journal:
Steep reductions in demand for lumber used for residential construction has caused a dramatic decline in price. In February 2005, one thousand board feet of Douglas fir sold for $880, according to a spokesperson at Pacific Coast Building Products in Rancho Cordova. One year later, those prices had dipped to $337 per thousand board feet. This month, the price stood at $170.
...
While economic factors are bound to shift, Terry Street, president of Roebbelen Contracting, estimated wood prices are likely to stay low in the near future. "I think it's going to be down there for a while," he said. Street's company specializes in wood-intensive projects such as schools in the Sacramento area. "I'm not expecting the housing market to quite jump back overnight."
From the Stockton Record:
Some of Stockton's commercial office corridors look grim these days as small financial and real estate services firms fall prey to the housing-industry meltdown and vacate the premises...[D]ozens of those smaller, under-the-radar real estate and financial companies have gone under, quietly left town or substantially downsized, adding to the ranks of the unemployed, vacating numerous office buildings and leaving some commercial landlords begging for tenants.

"The commercial tenants are not there to attract any longer. Everything has gone quiet, the phone has stopped ringing," said Chuck Lantznester, owner of American Commercial Brokerage in Stockton who has spent 35 years as a commercial property manager leasing office space..."A year ago and beyond, things were really fabulous. Even when the residential market was going down, the commercial market was holding up. The downturn is going across the board now," Lantznester said.

11 comments:

smf said...

In February 2005, one thousand board feet of Douglas fir sold for $880...One year later, those prices had dipped to $337 per thousand board feet. This month, the price stood at $170.

So...if two years ago, someone would have said wood prices would come down 80%, what would people have told them...?

Jacob said...

Yea, but the price of wood never goes down. Nothing ever goes down.

Banks only have a limited amount of time left to dump thier homes at a mear 60% off or so... Wait until the builders start making $150k homes again. Land costs are down, material costs are down, labor costs are down, and builders will continue to build (the ones that don't go out of business).

The average sales prices of Auburn and Newcastle homes decreased from $502,510 last year to $476,493 this year ... “Prices are starting to level out,” Newton said

So prices declining = leveling off now. Let me know when the prices stop going down...

Cow_tipping said...

Yes, builders will still make their 10-30% right off the top, they dont care if the house cost 150K or 600K. Cheaper materials and cheaper labor as well as easier permits and cheaper land = 75% off. Been there, done that, got this lousy cap and T shirts from my builder (centex) ... OK not 75% ... more like 20%, but this was charlotte and in the 90's housing never soared to crash back in the early 00's in charlotte. Of course in 02-05 it never soared back either.
Cool.
Cow_tipping.

Diggin Deeper said...

Why shouldn't commercial real estate take it's turn in the whipping shed? We've seen that all the excesses were NOT confined to the homeowner and Wall St financials.

Commercial real estate was the last segment that made it to the party. Liken it to the homeowner who just had to buy in the summer of 2005. Now the consumer is pushing away from the table just as all the new brick and mortar hits the street to serve people who've tapped out their resources.

All the voodoo lending instruments were in place allowing builders to build at will.

What a great opportunity. The commercial reits are perched to fall big time. The only thing holding them up is the dividends they pay, and those will not hold up when a glut of inventory meets rising debt service head on.

We've seen what troubles the monoline insurers are in, and commercial RE is next in line to get their due.

Gwynster said...

Lander, did you see this piece? Nice write up on Elk Grove.

http://www.theatlantic.com/doc/200803/subprime

smf said...

Gwyn, gwyn, gwyn...sigh...

Did you notice the rest of the write up about how all of us will move back into the inner city, in our beautiful lofts and condos?

Nice writeup, but still an RE shill...

Gwynster said...

What I'm most interested in is change in family composition, delinquent activities, and demographic trends.

I do think we will begin moving into denser housing in city centers as population stresses take hold and energy prices increase. I don't see it as a shill piece because no matter where you go, affordabilty is one metric you can't get away from.

smf said...

"I do think we will begin moving into denser housing in city centers as population stresses take hold and energy prices increase"

Evidence suggests the contrary view. Regardless of what we believe reality shows that future population increase, if not decrease, is around the corner for developed countries.

Japan has already been confirmed into this decreasing spiral, and we know where their RE prices are at.

What bothers me about this article is that it is making the same assumptions that a lot of these builders did w/o asking REAL home buyers what they really want.

Diggin Deeper said...

"I don't see it as a shill piece because no matter where you go, affordabilty is one metric you can't get away from."

Right on Gwyn....the rules are changing and we're starting to change with them.

Imho, a paradigm shift is well underway that will address the transition from low interest rates and low costs to higher rates and higher costs. States will continue to gain or lose population based on the services they provide against the taxes necessary to provide them. California is likely a net loser which might not be all bad.

Extending families to three generations or more under one roof is probably going to be common as two income wage earners find out they need more streams of income in order to survive.

Things are changing rapidly as we begin to settle into the fact that higher costs, particularily energy, agricultural commodities, and clean water issues are here to stay.

smf said...

Things are changing rapidly as we begin to settle into the fact that higher costs, particularily energy, agricultural commodities, and clean water issues are here to stay.

The question then becomes, why the higher costs?

This bubble went far and wide, and directly affected many countries around the world.

Unfortunately, these countries grew their economies on the back of the housing bubble. Pop the bubble and soon you will see the economies tied to it start to sink.

Last I read, the US still consumes about 30% of the world's production. Reduce that consumption a little bit, and see what happens...

Diggin Deeper said...

"Last I read, the US still consumes about 30% of the world's production. Reduce that consumption a little bit, and see what happens..."

It's interesting to watch the price of oil. One week we're sitting in the 80's, and the next we're breaking $100 all due to a couple of non-events in Venezuela, Nigeria, and at a tiny Texas refinery fire. What it says to me is that supplies are constrained and just the mention of minor disruptions are tending to tip the balance. It's also worthy to note that the highest production of oil in the world occurred in May of '05 at 74,252,000 barrels per day. The world has yet to meet or exceed that production figure to the present. Face it, if supply is dropping faster then demand, the price of energy goes up. The market makes the rules, we don't.

Matt Simmons wrote an interesting book, "Twilight in the Desert" a few years back. It gives a great account of the history of Saudi Oil and just what's going on with regard to diminishing supplies.

Energy cost is the wild card to higher prices. Even diminishing demand is not likley to stifle falling supplies.