Developers of commercial real estate, watching rents fall and financing costs soar, are slashing their investment plans.Why are rents falling? And are they falling in the non-commercial sector?
For years, lots of people have predicted a housing implosion. In 2005, I read several articles in which potential buyers announced their eagerness to pounce on homes once those properties entered foreclosure. So the loss in value is not a surprise. What surprises me are lower rents, since everyone presumed that people forced out of their McMansions would crowd the rental market. (I've seen some signs of lowered rents here in southern CA.; your mileage may vary.)
Deflation: Here's a bit more to chew on, from the same Krugman column...
As the great American economist Irving Fisher pointed out almost 80 years ago, deflation, once started, tends to feed on itself. As dollar incomes fall in the face of a depressed economy, the burden of debt becomes harder to bear, while the expectation of further price declines discourages investment spending. These effects of deflation depress the economy further, which leads to more deflation, and so on.Actually, we had deflationary periods during the Bush years. The only things going up, up, up were home prices; everything else headed in the opposite direction. Without the housing boom, we would have had an official period of deflation. So how long has this crisis actually been going on?
And deflationary traps can go on for a long time. Japan experienced a “lost decade” of deflation and stagnation in the 1990s — and the only thing that let Japan escape from its trap was a global boom that boosted the nation’s exports. Who will rescue America from a similar trap now that the whole world is slumping at the same time?
Bonus: According to The Big Picture, $140 billion of taxpayer loot went to the top six financial concerns. Of that figure, more than half -- $85 billion -- went to bonuses.
Yes, I know that Obama has promised to cap executive pay in his stimulus program. But there are ways around that cap.
First, they apply only to companies that receive government bailout money in the future. For companies that don't receive "exceptional financial recovery assistance" -- such as the outsize bailouts that went to AIG and Citigroup -- the restrictions on executive pay would be waived if the company discloses the compensation and allows a nonbinding shareholder vote.
Companies that don't have the restrictions waived still could pay an unlimited amount in restricted stock and other incentives.
Also, while executive salaries are capped, there are no limits on the scores of mid-level Wall Streeters such as bond traders or investment bankers who typically pocket million-dollar bonuses.The Republicans will publicize these outrages (even though the previous bailout package occurred on the watch of a Republican president) in order to turn people against the stimulus package. In fact, the plan is rapidly losing support...
The Gallup Poll, taken over the weekend, asked Americans if the plan should "pass as proposed," "pass with major changes," or be rejected. While 38 percent of respondents said it should pass as proposed, 37 percent wanted major changes. Seventeen percent said it should be rejected.Is the Gallup poll an outlier? I don't think so...
A Rasmussen poll released on January 21 found that only 45 percent of voters supported the stimulus plan, with 34 percent siding against it.The Republicans have an alternative: Lowering taxes on the wealthy -- to make sure that the execs who got taxpayer hand-outs keep more of their $85 billion. Those execs will probably stash the dough in a Swiss bank account, because this country is heading down the tubes.
In other words, the GOP propagandists -- who have not lost their muscles -- will scream, with some justification, that Obama plans to give away more money to the wealthy. The GOP alternative is to give away more money to the wealthy.
Aren't you glad we have a two-party system?
8 comments:
Joe, Michael Panzer over at More in the Family begins by writing:
In 1915, the average number of people sharing a home, including parents, offspring, and "extended squatters," was 4.5, according to a 2006 MSNBC.com report citing U.S. Census Bureau data. By 2006, that number had shrunk by nearly half to 2.6.
One reason for the decline, the article noted, was the fact that Americans had gotten much richer through the course of time, allowing young adults and others the luxury of going off to create a nest of their own.
Now, though, with economic conditions staging a dramatic turnabout, some reports suggest we could be seeing a reversal of the long-term demographic trend. In "More Families Move in Together During Housing Crisis" (link at his "Financial Armageddon" blog) USA Today gives us the latest.
(Couple of quotes from the USA Today article): Siblings are moving in with one another to help pay the mortgage. Adult children who've lost homes to foreclosure are moving back home with Mom and Dad. Even spouses in the throes of divorce are putting off separating, living together in awkward cold wars because they can't sell their houses.
That's in large part because those losing homes often have nowhere else to go.
I can answer as to why rents are falling in the commercial sector. As companies close down they leave more leased spaces vacant. Many companies that reduce staff and/or cut back production will also reduce office/industrial space leased. Without many new startups coming along or companies expanding it becomes harder to lease those vacant spaces.
However, if you own a building that you're trying to lease out you have a lot of fixed expenses so you need to maintain cash flow. Therefore, you might lease a space for less than you'd like. You also might renegotiate a lease with a commercial tenant who wants to downsize or is threatening to move simply to keep them there. It's much more expensive to replace a tenant than it is to keep the old one. All of these things serve to force down commercial rents.
My company is in property management and we're facing that tough leasing market right now.
"Aren't you glad we have a two-party system?"
Funny... I remember not too long ago you bashing Nader. Having it both ways, are we?
"Rapidly losing support..."
Both CBS and Gallup have polls out on Thursday, showing 51-52 percent support for the stimulus Bill. The poll taken by Gallup on January 27 also shows 52 percent support for the stimulus bill. That shows support for the bill has not changed for about a week or so( around the time the Republicans threw a hissyfit), although it has dropped from early January.
It is also hard to figure out from the polls taken lately wether the minority opposed to the bill are opposed to any stimulus bill or to this specific one in the Senate now. It is also difficult to figure out wether the opposing minority wants more tax cuts(as Republicans claim is the will of the people and I believe is a made up myth) or more spending on mass transit, education, etc. (Krugman, Governors, progressives and others).
In other words, most people were of the opinion(between the election and inauguration)that the government should do something about the failing economy. Now that there is an actual bill in Congress, there is disagreement about the terms of it. That makes total sense.
There are several reasons for the slowdown in residential rentals. One is that many of the people who couldn't pay their mortgages decided to try renting them out instead. Unfortunately people who were smart enough not to buy overinflated mortgages are also smart enough not to pay overinflated rents, assuming they have the choice, which they do now because it's the homeowners who are in the bind. Added to their woes is the fact that many, many of the fancy-schmany new developments forbid their homeowners from renting out their homes, because you know, renters are revolting half-savages whose very presence on a street corner will instantly lower your property's value to a level just above dirt.
Then there are the geniuses who bought several homes during the housing boom figuring they'd rent them out and retire rich. All of these properties are competing with each other, and with all the new developments that (at least in my county) seem to cover every inch of grass the developers could find and build a big ugly "luxury apartment home" monstrosity on. Most housing-bubble areas were overbuilt and have a glut of both rental and purchase housing. In my county again, estimates are that it will take two years to sell off existing inventory--and this is even given an expected influx of several thousand new workers in the next few years). With that kind of overstock, and the owners' and developers' desperation, there are some good rental deals going in most bubble-licious areas.
Not good enough in some cases -- again, my county being a good example where people still hold on to the delusional dream that above-mentioned influx (nicknamed BRAC) will save us all, so they are clinging to overinflated prices AND rents. They will learn, and it will be bitter.
Oh, I heard an economist on NPR two weeks ago saying that the next coming crack-up is going to be the bust in commercial real estate and that it's going to make the housing meltdown look like a picnic in the park. Hooray!
Hoarseface,
Nader wanted Bush to win in 2000. He said so in an interview with Outside magazine. Not too surprising, considering he's a closet Republican who hangs with the likes of Grover Norquist.
Having it both ways, are we?
Hey, guess what?
All the beggars whining about how they desperately need housing and will trade skills I can hire or do myself?
I prefer the leisure of not renting to the likes of chiselers.
No prob. Let them beg. They get what they (won't) pay for. I never over-inflated and I sure as hell won't be doling out rooms to those who lost their own housing.
Yes, I'm being undercut by losers who mortgaged for the sake of cruises and crap like that, but hey...like I said. You get what you pay for and good luck with those shoddy landlords.
LandOLincoln...well said. Nader is the scum Pied Piper who misled the original Mentally Challenged Youth Brigade before OZero got the same idea. My next vintage toy will be a Corvair, for that reason.
LandOLincoln,
I must thank you, as I was not aware of the things you mentioned about Nader. A bit of preliminary research seems to bear you out, although I'm not sure I entirely agree with the phrasing you used.
But regardless of Nader himself, I feel my point still stands: Joe has described himself as a life-long democrat until the 2008 election. But turning against Obama for him did not seem to equate with turning against the two-party system. I remember only one post related to 3rd-party or independent candidates (and I believe it involved his reasoning for not supporting them) but I remember many posts defending McCain. I remember many posts arguing against voting for Obama; I can't remember a single post supporting a candidate outside of the two major parties. To me it seems a bit ridiculous to be a life-long major party supporter, only to turn your back on that party and defend it's opposite, and then complain about a two-party system.
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