According to NAR’s recently released quarterly Commercial Market Survey, commercial real estate sales volume was down two percent in the fourth quarter of 2011 compared to the previous quarter. The quarterly percent change in sales has fluctuated around zero for the past year for commercial properties reported by Realtors®.

At the state level in the past quarter, however, the changes have been substantial, with some states participating in the economic recovery and others still in a declining mode. Major drivers of commercial real estate sales are jobs and the economic recovery.

Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights the unemployment rate.

• In January the unemployment rate declined again, settling at 8.3 percent.  This marks the third consecutive month of a decline of 0.2 percentage points in the unemployment rate.  In January 2011, the rate was 9.1 percent.
• The decline in the unemployment rate was driven by job growth.  243,000 payroll jobs were added in January including 257,000 private sector jobs.  The loss of 14,000 government jobs makes up the difference between the two figures.  Government jobs have declined in 16 of the last 18 months.
• Employment data are benchmarked annually and today’s release incorporates information from that benchmark.  The benchmark revisions led to an increase in total payrolls reported in December from 131.9 to 132.2 million. Revisions to the monthly reported net job change ranged from a gain of 64,000 jobs in June 2011 to a loss of 31,000 jobs in July.  Net job growth in 2011 as a result of the revisions was 1.7 million versus a previously reported 1.5 million.
• Looking at household data—the only place you’d find many REALTORS® since they are often independent contractors and wouldn’t be found in the payroll data—the reported number of employed individuals grew by 847,000.  339,000 of those came from the ranks of the unemployed and another 508,000 were additions to the labor force.  However, this data was also benchmarked based on the incorporation of Census 2010 data.  Taking out the effect of the benchmark, January was still a good month.  The number of employed rose by 631,000 the number of unemployed shrank by 381,000, and the labor force grew by 250,000.  This marked a flat labor force participation rate and an increase in the employment to population ratio.
• Other strong indicators are an increase in working hours, especially in the manufacturing industry.  The typical workweek increased by 0.3 hour to 40.9 hours.  Average hourly earnings also rose by 4 cents, a near average increase.  From one year ago, earnings are up 1.9 percent, a slightly below average increase which might be expected given the still elevated unemployment rate.

Since the estimate of state-level shadow inventory in March 2011, and an update in the fall of 2011, the aggregate size of the shadow inventory has not improved convincingly. The estimate of the shadow inventory nation-wide is still about 2.1 million. This is largely due to backed up foreclosure inventory, which has continually grown, and a significant backlog of the seriously delinquent inventory.

Generally, focusing on the size of the two inventories does not paint a full picture of what is going on because of the high degree of churning of delinquent loans between the two inventories. Currently about half of the loans leaving the foreclosure inventory are going back to the delinquent inventory due to process reviews and modifications. Foreclosure inventory itself is still heavily populated by loans that have been delinquent for longer than two years. In judicial states, that share increases to 50 percent of loans in foreclosure. On average, loans in the foreclosure inventory have been delinquent for 650 days, up from 250 days in January of 2008.

In fact, the difference between judicial and non-judicial states is an underlying driver of the change in their delinquencies and shadow inventories. According to the December LPS Mortgage Monitor, the ten states with the largest drops in the share of delinquent inventories are all non-judicial states, including those hardest hit by the foreclosure crisis (Nevada, Arizona, California, with declines of 19 percent, 25 percent, and 21 percent respectively). Figure 1 illustrates the year-over-year percentage point change in foreclosure inventory at the state level.

States in the eastern part of the country, which are also generally judicial states, have seen increases in the foreclosure inventories while those in the West have seen the largest drops. Foreclosure inventories in judicial states, in fact, hover two and a half times higher than those of non-judicial states. That is in part related to the slower rate at which judicial states are moving foreclosure inventory into foreclosure sale. On a monthly basis, about 1.6 percent of the foreclosure inventory moves to foreclosure sale while in non-judicial states that rate reaches almost 7 percent.
Two figures below list states by size of their shadow inventory. The state by state estimate of shadow inventory presented here is based on the same method as described in the March 2010 shadow inventory article (PDF). Not unexpectedly, Florida, a judicial state, still ranks on top with largest shadow inventory. Since March 2011, the estimate has further expanded by over 46,000 more loans.  In contrast, the second highest ranking state California saw reduction of shadow inventory by some 11,000 loans. Illinois, previously ranking third, has now fallen to the fifth highest ranking state with shadow inventory shrinking by over 26,000 loans. New York and New Jersey, with a significant backlog of foreclosure inventory and a slow foreclosure process, are now the third and fourth highest ranking states. In New York, however, the size of the shadow inventory is about 4 percent lower than a year ago while in New Jersey it is over 4 percent higher. Some states had even larger relative increases. For example, shadow inventory increased by about 25 percent in Connecticut, Maryland, and North Carolina; and around 20 percent in Hawaii and Vermont.

Yet there has also been some significant improvement in a number of states, including Idaho, Utah, Wisconsin, Tennessee, Illinois, Colorado, and Arizona, where shadow inventory fell by more than 20 percent and up to 40 percent. A number of other states had decreases in double digits.

While the foreclosure backup will take years to clear up in some states, it is also important to monitor levels of new delinquencies entering the pipeline. Nationwide, only about a quarter of new delinquencies are first-time delinquencies. Figure 4 maps the year-over-year percentage point change in new delinquencies at the state level. Although the data does not break out first time delinquencies, only five states saw increases in new delinquencies and increases were relatively minimal – ranging from 0.01 to 0.11 percentage point increase. On the other hand, states struggling with the foreclosure crisis, Nevada, Arizona, and Florida, all saw significant drops in new delinquencies.

Generally speaking, the aggregate shadow inventory estimate suggests very little improvement, although state level data indicate that three out of five states have seen improvement in foreclosures. There is still a long road ahead, particularly in judicial states where the backlog is large and the process is long. LPS estimates it would take 95 months to clear the inventory in judicial states and 34 months in non-judicial states.

As REALTORS® in most parts of the country would know, the completion of home sales are strongest in the late spring and summer months as compared to the winter months. January and February are two months with the lowest number of home sale closings because few buyers shop for homes between Thanksgiving and the New Year.

The below graph clearly illustrates the seasonal trend of total completed sales. The peak months can see as much as twice the sales activity seen during the weak months.

The data frequently reported in the media and as reported by NAR for monthly sales is not the raw count of sales but seasonally adjusted figures. That is how all economic data are reported. It would be foolish and not meaningful to say sales are tumbling or jobs in beach towns collapsed in December, if in fact it is a very normal seasonal pattern. And the seasonally adjusted data has been showing a slight improving trend in home sales this past November and December.

Still, from the homeowners’ and practitioners’ points of view, the seasonally adjusted data do not necessarily mean an easy home sale or a higher commission income in winters’ months.

Here’s a USA Today article on how to sell a home in winter. You may not agree with all of these suggestions and/or you may have your own special method.

Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights unemployment insurance claims and productivity growth.

• The number of people filing for unemployment checks for the first time declined in the past week, falling to 367,000 filers.  This marks several consecutive weeks off the critical mark of 400,000.  Above 400,000 would mean too many workers are losing jobs such that any job creation is swamped by other job losses.  So, today’s data is implying some overall net new job creation in the country.
• The total of those receiving unemployment insurance was 3.4 million, a decline of 130,000 from the prior week.
• Unlike the unemployment rate figure, which is considered a lagging indicator of economic conditions, this weekly data is some of the timeliest information on the latest developments on the job front.  So today’s data implies continuing overall job gains in the country.
• In other news on data released today, the U.S. worker productivity rose 0.7 percent.  To go into detail, the total work hours of everyone combined increased 2.9 percent while the overall production rose even higher to 3.6 percent.
• Productivity growth ultimately determines the standard of living of a country.  The more tangible products we can generate with a lower proportionate rise in work hours, the more we will have to enjoy for consumption in the future.

According to NAR’s recently released quarterly Commercial Market Survey, NAR’s commercial practitioners are reporting that they are seeing more business opportunities.

The Great Recession seriously impacted the demand for commercial space. Employment provides the main thrust for commercial space demand, and the lack of jobs has been a major issue at the national level.

NAR Home Sales Data Can Put the Market in Perspective

Note: This is the first part of a three-part series.  Part two will be posted on February 7th, 2012.

Introduction
Concerns about existing home sales, prices, and trends splashed across the national media can be overwhelming to the potential buyer. Buying a house is a big, important decision—and Realtors® have been mentioning that some buyers are reluctant to take the plunge because of all the negative publicity. Taking a tip from Dragnet’s Joe Friday, “All we want are the facts…,” NAR’s Existing Home Sales (EHS) statistics can show the facts.

• NAR’s national numbers for the housing market can show the potential buyer the overall, summary market trends.
• Since all real estate is local, the Realtor® can graph their local area sales and price information next to the national numbers—putting the local market into context. The objective is to give the potential buyer confidence in where the local market is headed and an understanding that the national data may be good or bad, but the local expert—the Realtor®–can help in understanding the home purchase.

This is the first of three articles discussing the use of sales, price, and inventory data. Taken together, the data at the national and local levels should provide the potential buyer an improved view of the market in order to make a realistic offer.

Home Sales—Actual and Trends
Monthly home sales fluctuate—causing the media and the potential buyer—to think of the home sales markets as uncertain or on a rollercoaster. However, a review of underlying market trends based on 6 and 12 month rolls (1) currently shows a home sales market that has been reasonably stable over the past four years. The Existing Home Sales market has fluctuated in recent years in a sales range somewhat above 4 million homes.

Home sales are strongly dependent on jobs. No one can guarantee the outlook—but the economic recovery is expected to generate additional jobs. In presenting information to a potential buyer, a graph of local sales coupled with the national information—both on a rolling basis and a month-by-month basis—puts overall sales trends and market performance in context.

On a monthly basis home sales appear to be gyrating and possibly declining.

However, considered on a four year basis—the current market for home sales as a rolling average are actually reasonably stable.

What Does This Mean To Realtors®?
The market overview based on a four year trend of sales appears to have been steady at the national level. Of course, all real estate is local. That is why a juxtaposition of local sales numbers with the national numbers can build confidence in where the market is headed—whether up or down. Both monthly and 12 month rolling data are relevant.

1. A 12 month roll is the sum of sales in the past 12 months; the roll generally will have a different value each month as one month of data is added and one month of data leaves. This makes the 12 month roll a trend line.

Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights mortgage applications and jobs data.

• Mortgage applications dipped in the past week according to Mortgage Bankers Association. The applications for home purchases fell by 2 percent while refinance applications slid 4 percent.
• Broadly speaking, home purchase applications have been trending sideways throughout the past 18 months. This trend roughly matches the trend of existing home sale closings, which has also been moving sideways.
• Be mindful that home sales closings and mortgage applications can diverge, because there is no data on actual approvals of those applications. In addition, a good one-third of home sale transactions have been all-cash, thereby completely bypassing the mortgage process.
• As for other economic data released today, the job market continues to improve. The private sector added 170,000 jobs in January according to a company that processes paystub distribution. This is not an official jobs figure. The Bureau of Labor Statistics has the final word and will come out with more comprehensive January jobs data this Friday. It will probably show slightly less job creation since state and local governments have been shedding jobs.
• Finally, BLS did release its metro level job market for December. A few noteworthy markets are: the San Jose area (with its Silicon Valley and Facebook IPO) added 26,000 job gains in 12 months while Houston added 76,000. Both represented a very good 3 percent gain. Louisville was the star among mid-sized cities with 20,000 job additions. Holland, Michigan added 5,000 jobs representing a strong 5 percent growth. North Dakota is in its own world with no economic distress whatsoever with 22,000 job additions, translating into a 6 percent jump. Here is the link.

Commercial real estate in REALTOR® markets moved toward broader stabilization during the fourth quarter of 2011. Based on the results of the January Commercial Real Estate Market Survey, overall market activity registered slight improvements compared with the third quarter.

On the leasing side, activity rose 2.0 percent over the previous quarter. Vacancies declined for most core properties, leading to a lower level of rent concessions. The decline in rental rates also slowed, indicating markets in recovery. In a noticeable change, while the majority of respondents found tenants continuing to look for smaller commercial spaces, there was an increase in demand for space in the 5,000-10,000 square feet range.

Investment sales declined 6.0 percent from the third quarter. However, 70.0 percent of REALTORS® reported completing a sales transaction during the fourth quarter. Compared with a year ago, sales were slightly lower – down 1.0 percent. Prices also declined, by six percent, compared with the third quarter. Cap rates declined for office, industrial and development properties, but rose for retail, multifamily and hotels.

In an encouraging sign, sales of higher priced properties increased. The average transaction price rose from $1.1 million in the third quarter to $1.2 million in the fourth. Commercial practitioners continue to find financing as the top obstacle in closing deals, followed by the national economy.

For the full report along with regional details, please visit this page.

Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights the Case-Shiller index and consumer confidence.

• The November reading of the Case-Shiller index was released this morning which covers the three months of September, October and November.  The non-seasonally adjusted 20-city index eased 1.3% from October to November, the third consecutive month of decline.  On a year-over-year basis, the gap expanded to 3.7% from 3.4% in October.
• Only one MSA, Phoenix, showed an increase relative to the three months ending in October. The year-over-year price gab expanded in 13 of the 20 metros tracked and only two, Washington and Detroit, are positive relative to November of 2010.  Since the Case-Shiller index incorporates data for the three months of September, October, and November, today’s measure does not reflect the more recent price trend that showed up in NAR’s January release.  The index has remained relatively flat since 2009.
• Consumer confidence eased 3.7 points in January from December.  The majority of the decline was concentrated in the present index which tumbled 8.1 points to 38.4, while the expectations index was nearly unchanged.  Consumers generally were more pessimistic on current business and highering conditions.  The trend for confidence is important and remains 40% higher than October’s low.
• Today’s release of the Case-Shiller index points to a late 2011 expansion of the year-over-year price gap.  This pattern may reflect sharper discounts on distressed properties which was observed in the October and November Existing Home Sales releases from NAR, but a much smaller gap developed in the December NAR release.  Look for a muted improvement in next month’s reading of the Case-Shiller index as the December improvement will be average with the trends from October and November.  Three consecutive months of steady improvement in consumer confidence ended in January, but consumers remain confident about the future despite weaker current conditions.   Improved confidence could boost demand for housing and stymie the flow of delinquencies, but employment is key to the recovery and sustained weakness there could undermine the gains in consumers’ expectations.