Commercial Real Estate

NAR: Commercial Index Eases Commercial real estate market activity is expected to decline moderately with fewer business opportunities for commercial practitioners in the months ahead, according to a forward-looking index for the commercial real estate sectors published by the NATIONAL ASSOCIATION OF REALTORS®.

The Commercial Leading Indicator for Brokerage Activity slipped 0.4 percent to an index of 120.1 in the fourth quarter from a reading of 120.6 in the third quarter. However, it remains 0.1 above the fourth quarter of 2006 when it stood at 119.9. This is the second straight quarterly dip in the index, after reaching a record of 120.7 in the second quarter of 2007.

The index showed nine consecutive quarterly gains prior to these declines; NAR’s track of the index dates back to 1990.Lawrence Yun, NAR chief economist, says the latest index suggests reduced business opportunities for commercial real estate practitioners in the months ahead. “The decline in the index implies that commercial activity, as measured by net absorption and the completion of new commercial buildings, is likely to contract moderately over the next six to nine months, which is consistent with an expectation for slower overall economic expansion in upcoming quarters,” Yun says.

Rising unemployment insurance claims and falling durable goods shipments were the key factors in lowering the CLI, but a weaker rate of return on investment as measured by the NAREIT Price Index was also a factor. However, positive contributors to the index were seen in the growth in wholesale and retail trade, and rising personal income, according to NAR.The latest data imply that investment in private nonresidential structures, which rose a solid 13.2 percent in 2007 according to a preliminary GDP estimate, could show only minimal growth or even decline in 2008, Yun says The Commercial Leading Indicator also implies weakening activity for commercial leasing and building sales activity. “Commercial practitioners can anticipate a weaker, though positive, net absorption in the office and industrial sectors later in the year with fewer new commercial buildings reaching the market,” Yun says. The index is a tool to assess market behavior in major commercial real estate sectors, which incorporates 13 variables that reflect future commercial real estate activity.

New Market News

This week will be very important for mortgage rates despite the fact that it is a holiday shortened week. There are four relevant factual economic reports scheduled for release along with the minutes from the last FOMC meeting. This means that we may see fairly significant changes to rates more than one day this week.
Today brings us the release of November's Existing Home Sales report, which comes from the National Association of Realtors. It gives us a measurement of housing sector strength and mortgage credit demand, but is not considered to be of high importance to bonds or mortgage rates. However, after the surprisingly large drop in November's New Home Sales report, we could see this data also influence mortgage rates if it shows similar results. The financial markets will close early today and remain closed Tuesday in observance of the New Year's Day holiday. They will reopen Wednesday morning with the release of the Institute for Supply Management (ISM) manufacturing index. This highly important index measures manufacturer sentiment. A reading above 50 means that more surveyed manufacturing executives felt that business improved during the month than those who felt it had worsened. Analysts are currently expecting to see a 50.5 reading in this month's release, meaning that sentiment fell slightly from November's 50.8. A smaller reading will be good news for the bond market and mortgage shoppers while a higher than expected reading could lead to higher mortgage rates Wednesday morning.Also Wednesday will be the release of the minutes from the last FOMC meeting. This will give market participants insight to the Fed's thinking and concerns regarding inflation and monetary policy. It may also help form opinions of the Fed's future moves toward interest rates. It is one of those pieces of information that may cause a great deal of volatility in the markets or be a non-factor, depending on what the minutes show. They will be released at 2:00 PM ET, so they shouldn't affect the markets or mortgage rates until afternoon hours. The Commerce Department will post November's Factory Orders data late Thursday morning, giving us an important measurement of manufacturing sector strength. This report is similar to the Durable Goods Orders release that was posted late last month, except this report includes orders for both durable and non-durable goods. Durable goods are items that are expected to last three or more years such as electronics and autos. Examples of non-durable goods are food and clothing. Analysts are expecting to see an increase of 1.0% in new orders. This report generally does not have a huge impact on the bond market or mortgage rates, but it can influence bond trading enough to create a small change in rates.The final report of the week comes Friday morning when the Labor Department will post December's employment figures. The Employment report is considered to be one of the most important monthly releases we see. It gives us the national unemployment rate, the number of jobs added or lost during the month and average hourly earnings, which is a key measure of wage inflation. Rising unemployment, a smaller than expected increase in new payrolls and a small increase or even a decrease in earnings would be good news for the bond market. Current forecasts call for a 0.1% increase in the unemployment rate, pushing it to 4.8%. Analysts are expecting to see an increase in new payrolls in the neighborhood of 70,000 with earnings rising 0.3%. If we see much fewer than 70,000 new jobs, we should see mortgage rates drop considerably Friday. However, stronger than expected readings will likely push mortgage rates higher.Overall, the key data of the week will be Wednesday's ISM index and Friday's Employment report, which could set the tone for the bond market and mortgage pricing for the next few weeks. If they show weaker than expected results, mortgage rates should move lower for the week.

Shall you lock the rate if you are purhcasing the house?

Continuation, Monday News:

This week’s economic calendar features several reports that have the potential to move the market. But the big report for the week will be Wednesday's release of the Consumer Price Index. This read on consumer inflation could influence whether the Fed will again cut the Fed Funds Rate at their upcoming October 31st meeting.
For the moment, the Bond price has drifted below the 50-day Moving Average. However, close underlying support could help prices improve, so we want to be patient. I recommend cautiously floating at this time