Conerly Snapshot

Bill Conerly of Conerly Consulting send out a monthly newsletter that I always find insightful. He is also a regular contributor to Forbes.  He  helps cut through the noise and we all know there has been plenty of noise with the investment and oil  markets jumpy, the presidential primaries on full tilt and let’s toss in an opening on the Supreme Court.

These are five graphics I pulled from the March  newsletter.  He still expects moderate growth, which the past two years came in at just above 2% increases.   Employment rebounded in February.  Overall steady, and we expect the paace of growth to accelerate as we move toward summer.

Real GDP Growth/U.S. Home Prices Household Net Worth/Capital Goods Orders Stock MarketCharts used by permission of Bill Conerly (http://www.conerlyconsulting.com/this-months-charts).

 

5 Notable Things about Economy in October

Running out of steam?  Our first note is the US economic expansion continued this past summer, but only at a 1.5% increase according to a report released by the BEA last week.  Down sharply from 3.9 % growth this past spring.

Second note is Congress did extend the debt ceiling as the month closed out.  This prevents another standoff between the White House and the Congress, and gives the government and additional 80 billion dollars to play with ( ooops – sorry) to be able to borrow and keep the government working.   For the most part both sides of the aisle said it was a bad deal, but necessary to keep the government operating effectively.

Third note another month where the FED did not raise interest rates.  After almost ten years,  eight of which  included speculation that an interest rate rise was right on the horizon the Fed Open Market Committee said a 0 to .25 funds rate seems appropriate . See our first note as to why they may have kicked the can again.  This policy hurts the elderly, the retired, non profits who want to generate income with safety.  Don’t be surprised if it continues through the end of the year, and then doesn’t go anywhere very fast. Fed

Fourth note new home sales really fell off the cliff in September dropping 11.5 per cent.  This could be from low inventories, or it could be traced back to first note again.  Home prices have generally been climbing about 4 per cent in value over the past couple years.

Fifth note, Office building construction totaled $44.9 billion for the 12 months ending in August up 27.4% from one year ago.  Office vacancy is declining and rents are rising.  Expect this growth to peak in late 2015 and slow as we move into 2016.  Commercial Real Estate industry expects another solid year in 2016.

ABC’s of CCE ( Clark County Economy )

 

home_hoodHere are a few themes and stories that have been the fabric of our economic and political scene in Clark County during 2015. As always it is never dull here in Southwest Washington.

 

 

Angelo’s buy Riverview Tower
Blue Bird closes after 32 years – thank you Wade
Coffee / Coffee / Coffee on every corner in the County
Dueling Water Front Developers ?
Election Day….. Please get here ! Monica and Alishia already gearing up for 2016 ??
Fee Waivers still producing results
Growth Management Plan / Alt 4… 5… 6 ???? Can we have a final answer ?
Hazel Dell home to a retail revival – Panera / Sports Authority / 2 Dutch Brothers
Innovative Partnership Zone ( IPZ) is working
Joe’s Place continues to survive city life
Kassab builds and Sells 94 apartments in downtown – Leads the way
Local Labor market continues expansion by 6300 jobs in last 12 months
Marijauna revenues finally realized
New fire station at Main and Fourth Plain
Oil Terminal dominates all discussions
Pac Trust driving Eastside Growth
Quay to close October 31. Dramatic changes in store
RiverCruise business poised for growth?
Sun Modo finds a home as Solar Industry continues to expand
Transportation Budget from Washington State Legislature sucks for Clark County
Uptown Village on the upswing
Value Village – a new face soon
Walmart is now in Orchards – seven stores total
X – Motorola Moto X – is this phone really good?
Yes ! traffic is worse everywhere you drive in Clark County .
Zenith properties continues steady growth – leading Clark Property management firm

As the Fed turns…. what happens next?

 

CP101_nThere have a been an increasing number of articles and blogs posts  written , and discussions being had about what effects rising interest rates will have on commercial real estate.   The Federal Reserve has certainly remained steadfast in their policy of keeping rates low to promote economic activity.

It has paid dividends as the economy continues to keep a moderate pace (not strong, or accelerating) of growth.  What happens next?   Will it have a major impact on the CRE industry?

The industry has certainly thrived the past four or five years.  Here is a link to the National Real Estate Investment Trust page.    I’ve selected  the Western region so you can see how this section of the country has been faring.  Totaled  between income and appreciation holders of REITs  have done  well.

Keep in mind there are always time lags before we see reults of changes in policies.   In the early stages of Fed tightening, the momentum of a stronger economy dominates, and we’ll still see vacancy rates in office, retail and industrial sectors continue to fall, and rents will increase, boosting earnings.  This will bode well for building owners.

Economists Alan Beauleau who runs ITR says to look for a rate increase of close to 400 basis points or slightly under one half a per cent.

Ted Jones who is the corporate economist for Stewart Title sees a similar scenario, in his recent post September 12th, although he has concerns that job growth has slowed, and the Fed may have to delay their planned increases.

William Conerly in his article in Forbes magazine this past June makes the case  that longer term commercial lending rates are more tied to bond yields and thus may get pushed up in spite of Fed actions.

Either way Commercial investors should be fine for the first and second year of Fed tightening, with the caveat that if the Fed rate increases put a drag on the economy, there could definitely be more sluggish returns on the horizon within a two year window.