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Real Estate Market Commentary - April 2010
by Peter L. Zachary, MAI, MRICS

Commentary on the Real Estate Market as of April 2010 by Peter L. Zachary, MAI

There are signs that the American economy is improving which bodes positively for the real estate market, both the commercial and residential market. In my first Commentary on the Real Estate market in September 2007, I talked about how job losses will result in lower disposable income which would further exasperate the risk of a recession and housing price declines. In the month after my first commentary, the recession developed and now it appears there are signs that it is near its end or over.

On April 17, 2010, the New York Times had an article on its front page entitled "Upbeat Signs Revive Mode for Spending". It said:

American consumers are finally coming out of hiding. After months of penny-pinching amid the recession, new figures – showing an improving job market, rising factory output and increased retail sales – suggest that consumers are no longer restricting their budgets to necessities like food and medicine. They are starting to buy clothes, jewelry and even cars again. The mood has gone from panicked to cautious, and now, as Mark Zandi, chief economist for Moody's put it, some consumers are "almost a bit giddy." After the financial crisis hit in late 2008, consumers retrenched heavily. And in the months that followed, there were fears that newly frugal Americans would increase their savings so much there was no hope that consumer spending could be a factor in a recovery. That was a troubling prospect because consumers have been the drivers of economic growth after past recessions. After all, their spending accounts for more than two-thirds of all economic activity in the United States. But just a year later, consumers have eased off a bit on their savings, which frees up cash for them to spend. And in part because of the high rate of mortgage defaults, the overall consumer debt burden has been dropping. Those trends suggest to some economists that consumers may now be in a position to help drive the recovery. The improved outlook has been showing up at store cash registers for several months, and the trend seems to be accelerating. Major retailing chains posted better-than-expected earnings in their most recent reporting periods and are likely to deliver more good news on Thursday, when they report their March sales results. Total industry sales are predicted to increase up to 10 percent compared with the period a year ago, which would make March the seventh' month of growth in a row, according to the International Council of Shopping Centers, an industry group. (A significant part of that increase is because of a calendar shift involving Easter.)

"What I'm hearing across a wide swath of retail is that sales are simply much stronger than companies had expected," said Robert Barbera, the chief economist of ITG, an investment advisory firm. The improvement extends even to some of the most costly household items. Last. week, almost every automaker, including Ford, Toyota and General Motors, reported robust sales increases in March. Spring incentives like no-interest loans helped lure consumers into showrooms. The Commerce Department said its broadest measure of retail sales, a figure known as personal consumption expenditures, increased 0,3 percent in February compared with January, or $34.7 billion, the fifth monthly gain in a row. And the personal savings rate – which jumped above 5 percent during the recession – has returned into its historical level of about 3 percent. Perhaps the most meaningful sign of recovery is that employers added 162,000 jobs last month. With unemployment hovering at 9.7 percent, the job market is still weak by historical standards, but the rate is no longer rising. John D. Morris retailing analyst with BMO Capital Markets, said that at the nation's malls, strong fashion trends like jeggins (jeans so tight they resemble leggings) are helping drive sales. He expects the new iPad from Apple will do the same.

In general, these signs of an improving economy bodes positively as indicated by the Case-Shiller Indices, McCraw Hill’s Standard and Poor’s website stated on March 30, 2010 ("Home Prices In The New Year Continue the Trend Set In Late 2009" According To The S&P/Case-Shiller Home Price Indices):

Data through January 2010, released today by Standard & Poor's for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that the annual rates of decline of the 10-City and 20-City Composites improved in January compared to December 2009. In fact, the 10-City Composite is unchanged versus where it was a year ago, and the 20-City Composite is down only 0.7% versus January 2009. Annual rates for the two Composites have not been this close to a positive print since January 2007, three years ago.

I guess this is the proof in the pudding. No matter what economic news you have, you have to see its effect in on real estate values. It is safe to say that values have leveled off which is a good sign. When housing prices increase and by how much is the next $64 million question.

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