There will be very little business investment in the U.S. as the wisest corporations will spend their capital in the emerging Asian markets. As revenues drop and in order to stay alive, U.S. businesses will accelerate outsourcing to China and India to acquire their much reduced labor costs and non-existent benefits packages. It will only get much much worse in the U.S. Buy gold and especially silver to avoid the upcoming wreckage!
I find comfort in knowing that a long existing pattern looks like it is about to continue. Now the big question is if commercial real estate will follow residential over the cliff?
Wally makes an observation. I understand the first blush is to snigger and think about the economic relief valve this fungible labor source can represent but I have a darker view. For a very long time the US has been the social unrest shunt for the Mexican government. Their best, brightest, most ambitious, marginalized, unappreciated have been able to contribute in the United States rather than in Mexico. Repatriations have even made this a desireable circumstance. The prospect of millions of the disaffected returning is a stability problem. An unstable neighbor is an expensive proposition to repair or contain.
How are you calculating non-residential investment? Where would casinos be placed? What about hospitals? Is it determined by the funding source?
Reason I'm asking is that the residential has crashed here (SD) but the hospitals are going strong. There are approximately 3 to 4 billion worth of them being built in the next 3 years. Would this spending show up in your counts?
"The pieces are falling into place like a jigsaw puzzle:
Owned home vacancy up; rental vacancy up; office vacancy up.
I still think the population of Mexico must have surged in the last few months."
Maybe, but there's also the hangover from overbuilding and rampant speculation.
I will admit that there are fewer Latino casual workers standing in front of the local hardware store these days, waiting for contractors to come by. Some of them may have gone home. But there's also some indication that the shortage of pickers in California ag is letting up.
And there's also, I think, more house-sharing going on. Greater density in fewer houses, to save $$$.
Y.S. Wayne said: "I find comfort in knowing that a long existing pattern looks like it is about to continue. Now the big question is if commercial real estate will follow residential over the cliff?..."
Oh, it absolutely will. The way you know that is by looking at the charts of non-residential investment as compared to residential. They're both clearly in a downtrend, and everybody knows that the trend is the most important factor in knowing where things are headed in the future.
Non-residential investment always follows residential (with a lag), and since residential investment has clearly gone into "recession" territory, non-residential is headed there, too.
BTW, that's where all the significant unemployment is going to come from. When it occurs (within the next few months), that's when housing prices will really begin to accelerate downward. The homeowners who suddenly find themselves unemployed will be forced to sell into an already-weak housing market.
Your gold and silver will not protect you in this crash..it will be world wide..with the US OF A leading the way.
Cash will be king in the coming months...and no not just Dollars...not advice..reality.
I also demand the Fed raise rates and protect my dollar..screw housing..it is already in the toilet...Stupid Americans do not realize their purchasing power is going down the tubes...Yup Mission Accomplished.
The commercial RE mkt is no different than that of the paper or chemical industry. They all have a bad habit, until recently that is for the paper and chemical guys, to add large amounts of capacity right at the end of an up cycle. What happens next is that commodity prices drop like a log not only because of a slowdown in demand, but an attempt to increase sales by reducing price to cover the fixed costs associated with the addtional capacity. No one in their right mind wants to see a spike in fixed costs right at the end of an up cycle but it looks just like that for the office space guys and gals.
My gut is that it will not be a pretty time over the next 18-24 months.
I've often wondered why commentors have suggested rents would be rising on both residential and commercial RE. There has been substantial overbuilding in both. Rents are likely to stay put or fall over the next few years. Of course, with the brilliant Owners Equivalent Rent fiasco in the CPI, the housing "figure" may contribute to a higher CPI.
dc1000 you should look at the rgemonitor web page. you can see there articles about the mess saudi arabia, kuwait and quatar got themself into. you know chinese have no problem with falling dollar because they can do everything except oil themself but for example saudi arabia imports most of vegetables, meat and other things from europe and their inflation is raising something like 15-20%(meat) or 50-80%(vegetables) a year.
yes oil is priced in dollars but when there are too many dollars ... thats why before 911 a barell was 12usd now its 60usd
but for example saudi arabia imports most of vegetables, meat and other things from europe and their inflation is raising something like 15-20%(meat) or 50-80%(vegetables) a year.
What? Prices going up? Uh oh, what they need is some more "money"! That ought to fix it.
AZ_Cowboy asked: "Are you rescinding your "no recession in 2007" call?..."
No.
I wanted to make a couple of points with my bearish posts. First, I'm not a bull because I don't "get" the bears' case. I can appreciate and even convincingly articulate the bearish argument, myself. It doesn't hold water, of course, but that doesn't mean I don't understand it.
Which leads me to my other point: When presented in a reasonable, confident tone, even major flaws in logic and glaring errors of fact can look like a "slam-dunk" argument.
There will be no housing-led recession in 2007. There will be no massive job-loss in residential construction in 2007. There will be no large drops in the nationwide median price of housing. Problems in subprime will not "spread", causing significant problems in the rest of the mortgage market. The bears' case is flawed at its core and always has been.
revro:
funny you should mention RGE. i've read that website for years. back when it was just roubini's personal webpage at NYU.
i'm not talking about the impact on quatar.
i'm talking about how the US is still the biggest market in the world and in order for those who sell to us to compete they will have to keep prices the same in dollar terms.
its funny, the only things really going up in price are those that are homegrown, locally fixed such as:
health care
education
real estate (tho not so much anymore LOL)
point is, with the glut of dollars, tv's cars clothes etc are all still cheap and in many cases getting cheaper.
how can you reconcile that with the normal theories on dropping currency = higher import inflation?
If there is a significant increase in commercial building this year and next, that pretty much means that there will be an increase in non-res investment this year and next as well. Are we talking about a recession in 2009 now?
It is evident that an economy-wide recession will deal a body blow to a real estate market/industry already in recession, but what will happen if we avoid one? With the huge number of workouts that lenders are doing, with the GSE's taking on a share of the stronger subprime borrowers (estimated at perhaps 50% of total subprimers), with the money supply being pumped up recently and other forms of credit expanding, is a roubini-led recession really a slam dunk?
steveinprague said: "It is evident that an economy-wide recession will deal a body blow to a real estate market/industry already in recession, but what will happen if we avoid one?..."
First, I would argue that real estate isn't in recession now.
From March, 2006 to March 2007 there were 117,000 fewer residential specialty contractors (out of a total of 2.32 million). However, in the same time period there were 124,000 more non-residential specialty trade contractors.
How the construction sector can be in "recession" by employing essentially the same number of people as in the previous year seems like an awful stretch, even for the most hard-core bear.
"...is a roubini-led recession really a slam dunk?..."
No. In order for there to be a recession multiple sectors must be weak all at the same time, which just isn't happening and there's (still) no evidence that it will. If today's ISM number is any indication, just the opposite, in fact.
More warnings on CRE from bond rating agencies. (NYT link, registration may be required)
Spurred by the collapse of the subprime mortgage market, the leading bond rating agencies are beginning to crack down on what they see as risky lending practices in commercial real estate. ...
I'll go first:
Few hours ago I wrote that it would take 48 hours to see if indeed the rally is over.
some signs that it is - look at SRS today (Ultra short REITs)
btw, I am told they now want someone more bearish. Sign of the times.
I nominate Seabastian !!!!
CNNMoney.com: 404 Page Not Found
There will be very little business investment in the U.S. as the wisest corporations will spend their capital in the emerging Asian markets. As revenues drop and in order to stay alive, U.S. businesses will accelerate outsourcing to China and India to acquire their much reduced labor costs and non-existent benefits packages. It will only get much much worse in the U.S. Buy gold and especially silver to avoid the upcoming wreckage!
fireworks: keep your investment advice to yourself and immediate family, please!
I find comfort in knowing that a long existing pattern looks like it is about to continue. Now the big question is if commercial real estate will follow residential over the cliff?
The pieces are falling into place like a jigsaw puzzle:
Owned home vacancy up; rental vacancy up; office vacancy up.
I still think the population of Mexico must have surged in the last few months.
Wally makes an observation. I understand the first blush is to snigger and think about the economic relief valve this fungible labor source can represent but I have a darker view. For a very long time the US has been the social unrest shunt for the Mexican government. Their best, brightest, most ambitious, marginalized, unappreciated have been able to contribute in the United States rather than in Mexico. Repatriations have even made this a desireable circumstance. The prospect of millions of the disaffected returning is a stability problem. An unstable neighbor is an expensive proposition to repair or contain.
CR,
How are you calculating non-residential investment? Where would casinos be placed? What about hospitals? Is it determined by the funding source?
Reason I'm asking is that the residential has crashed here (SD) but the hospitals are going strong. There are approximately 3 to 4 billion worth of them being built in the next 3 years. Would this spending show up in your counts?
I hope SD means San Diego rather than South Dakota.
I'm Midwest agnostic so.... yes.... (Sorry Tanta)
"The pieces are falling into place like a jigsaw puzzle:
Owned home vacancy up; rental vacancy up; office vacancy up.
I still think the population of Mexico must have surged in the last few months."
Maybe, but there's also the hangover from overbuilding and rampant speculation.
I will admit that there are fewer Latino casual workers standing in front of the local hardware store these days, waiting for contractors to come by. Some of them may have gone home. But there's also some indication that the shortage of pickers in California ag is letting up.
And there's also, I think, more house-sharing going on. Greater density in fewer houses, to save $$$.
Rob Dawg et.al.
Don't forget that Mexico almost went leftist in the last election,
Man, CR, don't you just hate being right?
Y.S. Wayne said: "I find comfort in knowing that a long existing pattern looks like it is about to continue. Now the big question is if commercial real estate will follow residential over the cliff?..."
Oh, it absolutely will. The way you know that is by looking at the charts of non-residential investment as compared to residential. They're both clearly in a downtrend, and everybody knows that the trend is the most important factor in knowing where things are headed in the future.
Non-residential investment always follows residential (with a lag), and since residential investment has clearly gone into "recession" territory, non-residential is headed there, too.
BTW, that's where all the significant unemployment is going to come from. When it occurs (within the next few months), that's when housing prices will really begin to accelerate downward. The homeowners who suddenly find themselves unemployed will be forced to sell into an already-weak housing market.
Sebastia
Your gold and silver will not protect you in this crash..it will be world wide..with the US OF A leading the way.
Cash will be king in the coming months...and no not just Dollars...not advice..reality.
I also demand the Fed raise rates and protect my dollar..screw housing..it is already in the toilet...Stupid Americans do not realize their purchasing power is going down the tubes...Yup Mission Accomplished.
michaelcampion, here is a table for you of types of non-residential structures. Yes, hospitals are included.
Best to all.
why do people continue to believe that a dropping dollar will add to import prices?
oil is priced in dollars.
people that sell to us have to compete with us so the will drop prices in their own currency terms but keep the goods in dollar prices constant.
its been happening for years now.
The commercial RE mkt is no different than that of the paper or chemical industry. They all have a bad habit, until recently that is for the paper and chemical guys, to add large amounts of capacity right at the end of an up cycle. What happens next is that commodity prices drop like a log not only because of a slowdown in demand, but an attempt to increase sales by reducing price to cover the fixed costs associated with the addtional capacity. No one in their right mind wants to see a spike in fixed costs right at the end of an up cycle but it looks just like that for the office space guys and gals.
My gut is that it will not be a pretty time over the next 18-24 months.
oil is priced in dollars.
Yes but much of OPEC debt is priced in euros.... Hmmmm, maybe more than a little tail wagging the dog.
Sebastian,
Are you rescinding your "no recession in 2007" call?
I've often wondered why commentors have suggested rents would be rising on both residential and commercial RE. There has been substantial overbuilding in both. Rents are likely to stay put or fall over the next few years. Of course, with the brilliant Owners Equivalent Rent fiasco in the CPI, the housing "figure" may contribute to a higher CPI.
dc1000 you should look at the rgemonitor web page. you can see there articles about the mess saudi arabia, kuwait and quatar got themself into. you know chinese have no problem with falling dollar because they can do everything except oil themself but for example saudi arabia imports most of vegetables, meat and other things from europe and their inflation is raising something like 15-20%(meat) or 50-80%(vegetables) a year.
yes oil is priced in dollars but when there are too many dollars ... thats why before 911 a barell was 12usd now its 60usd
but for example saudi arabia imports most of vegetables, meat and other things from europe and their inflation is raising something like 15-20%(meat) or 50-80%(vegetables) a year.
What? Prices going up? Uh oh, what they need is some more "money"! That ought to fix it.
"for example saudi arabia imports most of vegetables, meat and other things from europe"
I have a friend who worked in Saudi for two years and she said it was common knowledge in the markets that the best produce came from Israel.
AZ_Cowboy asked: "Are you rescinding your "no recession in 2007" call?..."
No.
I wanted to make a couple of points with my bearish posts. First, I'm not a bull because I don't "get" the bears' case. I can appreciate and even convincingly articulate the bearish argument, myself. It doesn't hold water, of course, but that doesn't mean I don't understand it.
Which leads me to my other point: When presented in a reasonable, confident tone, even major flaws in logic and glaring errors of fact can look like a "slam-dunk" argument.
There will be no housing-led recession in 2007. There will be no massive job-loss in residential construction in 2007. There will be no large drops in the nationwide median price of housing. Problems in subprime will not "spread", causing significant problems in the rest of the mortgage market. The bears' case is flawed at its core and always has been.
Sebastia
revro:
funny you should mention RGE. i've read that website for years. back when it was just roubini's personal webpage at NYU.
i'm not talking about the impact on quatar.
i'm talking about how the US is still the biggest market in the world and in order for those who sell to us to compete they will have to keep prices the same in dollar terms.
its funny, the only things really going up in price are those that are homegrown, locally fixed such as:
health care
education
real estate (tho not so much anymore LOL)
point is, with the glut of dollars, tv's cars clothes etc are all still cheap and in many cases getting cheaper.
how can you reconcile that with the normal theories on dropping currency = higher import inflation?
If there is a significant increase in commercial building this year and next, that pretty much means that there will be an increase in non-res investment this year and next as well. Are we talking about a recession in 2009 now?
It is evident that an economy-wide recession will deal a body blow to a real estate market/industry already in recession, but what will happen if we avoid one? With the huge number of workouts that lenders are doing, with the GSE's taking on a share of the stronger subprime borrowers (estimated at perhaps 50% of total subprimers), with the money supply being pumped up recently and other forms of credit expanding, is a roubini-led recession really a slam dunk?
steveinprague said: "It is evident that an economy-wide recession will deal a body blow to a real estate market/industry already in recession, but what will happen if we avoid one?..."
First, I would argue that real estate isn't in recession now.
From March, 2006 to March 2007 there were 117,000 fewer residential specialty contractors (out of a total of 2.32 million). However, in the same time period there were 124,000 more non-residential specialty trade contractors.
How the construction sector can be in "recession" by employing essentially the same number of people as in the previous year seems like an awful stretch, even for the most hard-core bear.
"...is a roubini-led recession really a slam dunk?..."
No. In order for there to be a recession multiple sectors must be weak all at the same time, which just isn't happening and there's (still) no evidence that it will. If today's ISM number is any indication, just the opposite, in fact.
Sebastia
More warnings on CRE from bond rating agencies. (NYT link, registration may be required)
Spurred by the collapse of the subprime mortgage market, the leading bond rating agencies are beginning to crack down on what they see as risky lending practices in commercial real estate. ...