I’d like to hear good news as much as anyone else, but I’m starting to hit the “delete” button much more often on the e-mails I’ve been receiving that suggest that commercial real estate has turned the corner, or that it soon will because of economic stabilization from “better than expected” unemployment figures or the anticipated effects of government stimulus programs like TALF and P-PIP. No one wants to hear more bad news, but misleading propaganda insults my intelligence. Yes, losing 216,000 jobs in August was the lowest monthly figure in a year. But let’s but this in perspective. 18 months ago, this number would have been eye-popping and today the Labor Department reported job openings hit a record low in July, signaling employers are in no rush to hire workers again. The unemployment rate is now up to 9.7% after dipping 0.1% to 9.4% in July. Most economists expect this figure to breach 10% early next year. And although the stock market has rebounded at record pace, the sustainability of earnings improvement are highly uncertain as inventory reduction, artificial stimuli from the government, and massive cost cutting by employers created inevitable statistical improvements over analysts’ projections, which by now have turned to an underestimation bias.
With respect to real estate, residential sales have been improving, but this too is far from a sustainable trend. A backlog of over 1 million foreclosed homes have yet to hit the market and the slower selling season is approaching. Banking expert Meredith Whitney today suggested that home prices could fall another 25% as unemployment continues to dampen demand for homes. As she astutely suggests: “no banks underwrote home loans based on 10% unemployment projections”. By extension, demand for commercial space and apartment rental demand has rarely been set upon a backdrop of this magnitude of unemployment. While I believe we are approaching the peak of unemployment (10.5% is where I think it’s going to end), let’s not gloss over the fact that the lack of job creation, and hence consumer confidence and consumption will make this recovery a relatively long and challenging one for our industry.
