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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: MulhollandDrive who wrote (6233)	10/24/2002 8:19:38 PM
From: MulhollandDrive	Read Replies (1) \| Respond to of 306849

morganstanley.com Franco Modigliani (FM) The consumer is at risk. Having said that, I must confess to being surprised about the resilience of consumption after the stock market bubble popped. I would have expected some retrenchment. I would have also expected some related damage in the real estate market and the dollar. I still believe at some point there must be some repercussions. SR What gives you such conviction? FM The key for the consumer response is not the immediate situation. Too much is made of the day-to-day developments, such as mortgage refinancing. My work shows that consumers frame decisions in the context of their life-cycle considerations. It is an intertemporal theory, whereby decisions in any period have implications for adjustments in the future. That’s why the wealth effect can be important. If the popping of the equity bubble results in a reduction of longer-term return expectations on an important asset, that has important implications for life-cycle saving and spending patterns. SR But there is more to household wealth than stocks. Hasn’t the property market saved the day? FM While it may seem that way right now, I have my doubts. I am suspicious of those studies that find the wealth effect is larger from real estate than equities. Theory tells me it should actually be the opposite. That’s because the house in part, produces a consumer good -- housing services, which we consume. When the value of the house I inhabit goes up, its implied rental value increases. But that does not significantly improve my spending power, because my imputed rent has gone up as much. Any wealth effect on individually-owned property must net out the consumption of the service we derive from living in our homes. Those adjustments need not be made for stock portfolios. It is possible that new refinancing instruments, such as home equity loans may have temporarily distorted this relationship. But I would view this as a one-time shift, not as a permanent realignment of the link between wealth and consumption. SR So how does it all end for the American consumer? FM A negative wealth effect tells me it can’t go on forever. And that’s when I revert to the life-cycle theory. Sadly, the large cohort of aging baby boomers is not adequately prepared for old age. The personal saving rate is too low. It has been depleted by individuals betting on asset markets. Life-cycle theory suggests that the saving rate should have gone up by now. Obviously, it hasn’t -- at least, not yet. While that puzzles me, it doesn’t dissuade me from the basic view that the balance between consumption and saving will have to adjust. It’s just a matter of when. That leads me to conclude that that the American consumer is the most dangerous portion of the picture.

To: MulhollandDrive who wrote (6233)	10/24/2002 8:44:31 PM
From: nextrade!	Respond to of 306849

And isolated to Dallas? not story.news.yahoo.com Fed Regions Face Weak Conditions Wed Oct 23, 5:36 PM ET By The Associated Press Following are district by district summaries of economic conditions around the country as reported by the Federal Reserve (news - web sites)'s 12 regional banks in the central bank's latest economic survey: BOSTON: "The economy remains soft in New England. Most manufacturers report sluggish revenues. Some retailers, by contrast, indicate sales picked up modestly in September. Residential real estate markets holding up well, although slowing in spots." NEW YORK: "The economy has shown further signs of slowing since the last report while prices of goods and services were reported to be flat to down slightly. The job market remains weak, reflecting cutbacks in the financial sector and scant hiring in most industries except for legal services. Retail sales were reported to be well below (business) plan in September and early October. .... Retailers report more discounting than in the last report." PHILADELPHIA: "Business conditions were mixed in October. Activity declined in some sectors but improved slightly in others. Manufacturers reported some slowing in orders and shipments. Retail sales of general merchandise have ebbed. Auto sales have slowed also. Bank loan volumes increased somewhat, mainly because of growth in residential mortgages and consumer loans." CLEVELAND: "Contacts characterized economic activity during September and the first two weeks of October as slowing, stagnating or declining. Industries that had reported positive conditions in the previous report — residential construction, trucking and shipping, and automobile and home goods manufacturers — noted either slowing growth or no change in conditions compared with August. ... Agriculture contacts reported conditions worse than have been seen in the area for more than 30 years. Most contacts mentioned that uncertainty regarding both domestic and international events was having an adverse effect on their businesses." RICHMOND: "Economic growth remained moderate in September and early October, tempered by declining manufacturing output and sluggish retail sales. Manufacturing shipments, new orders and employment fell in September, extending a pullback that began the previous month. ... In agriculture, crop harvesting was under way, but the prolonged drought led to lower yields in most areas." ATLANTA: "The economy continued to display sluggishness during September and early October. Retail sales were around year-ago levels and auto sales have been disappointingly low. The strength in low- and mid-priced housing markets continued, but sales of higher priced homes remained weak in many areas and the demand for office and industrial space continued to be lackluster. Industrial activity was generally subdued apart from the defense and automobile sectors. ... Florida citrus crops and sugar production benefited from adequate rainfall and warm temperatures during September. Recent tropical storms brought needed rainfall to dry areas in the Florida Panhandle, Alabama and Georgia." CHICAGO: "Reports from district contacts generally suggested that economic activity softened in September and early October. Consumer spending weakened and many contacts noted that consumer sentiment had deteriorated somewhat. Home sales remained robust while nonresidential activity was weak. Manufacturers' reports indicated that activity slowed in recent weeks. ... Labor markets softened somewhat as businesses were reluctant to hire. Crop conditions varied widely across the district but forecasts generally suggested a lower overall harvest than last year." ST. LOUIS: "The economy has shown signs of improvement since the last report. Several manufacturers report an increase in orders and production over last year with plans for new investment in technology and expansions. The services industry continues to grow with activity picking up in freight hauling. Retail and auto sales have leveled off in October. ... In the agricultural sector, recent storms had mixed effects, damaging some crops but benefiting pastures. Harvest conditions for several crops are reported to be lagging last year's pace." MINNEAPOLIS: "Economic activity during September and early October was slow. Consumer spending was weak and energy and commercial construction activity were down. Agriculture and mining were mixed while manufacturing, residential construction and tourism grew. Over this period labor markets were soft. ... The agricultural economy was mixed. Livestock producers felt the negative effects from the drought and lower hog prices. Meanwhile, crop producers received firm prices and Minnesota and North Dakota producers enjoyed healthy crops." KANSAS CITY: "The economy slowed somewhat in September and early October, but business contacts remained cautiously optimistic about future activity. Consumer spending fell slightly, manufacturing activity eased and energy activity edged down. Commercial real estate markets showed no improvement and the farm economy continued to suffer from drought conditions. On the positive side, housing activity remained solid in much of the district." DALLAS: "Overall economic activity showed signs of contracting in September and early October. Manufacturing activity declined and retailers reported slower than expected sales. ... Contacts were significantly more pessimistic about the outlook for growth through the rest of the year, citing concerns about war, terrorism, the dockworkers' (stoppage) on the West Coast, declining stock market and upcoming elections. This widespread uncertainty is leading consumers and business investment to be put on hold. ... The Texas cotton harvest is expected to be significantly larger than last year, but export demand remains weak." SAN FRANCISCO: "Economic activity grew modestly in September and early October. Upward price and wage pressures remain muted overall.Sales of automobiles and smaller retail items slowed a bit and service providers reported mixed conditions across sectors. Demand for most manufactured items remained weak, due in part to limited spending on capital equipment. ... Agricultural contacts noted good yields and sales for most crops. Although some agricultural producers faced increased shipping costs due to the recent work stoppage at West Coast ports, the effects of the work stoppage on other sectors were limited."

To: MulhollandDrive who wrote (6233)	10/24/2002 10:04:21 PM
From: nextrade!	Read Replies (2) \| Respond to of 306849

Time to hotel? <G> Jack Corgel PKF Says Refinancing Helps Hotels Limit Loan Problems in Tough Times globest.com By Marita Thomas Last updated: Oct 24, 2002 11:25AM ATLANTA-An estimated 19.2% of hotels in the United States were unable to meet their mortgage interest obligations in 2001, (ouch!) according to a new study by locally-based Hospitality Research Group, a division of San Francisco-bassed PKF Consulting. While this is an increase from 16.4% in the previous year, "the percentage would have been much higher had hotel managers not reduced interest expenses by an average of 9% during 2001," Jack Corgel, managing director of HRG, says in the report. Corgel expects the number of deficient properties, those with insufficient operating income to cover interest expenses, to rise again this year, then "noticeably decline in 2003 as hotel markets recover." HRG's analysis is based on the 3,900 financial statements in its "Trends in the Hotel Industry" database. The 9% decline in interest payments is attributed to hotel owners' ability to refinance at today's low interest rates. "More than three-quarters of the hotels in our sample reported a reduction in interest payments from 2000 to 2001," Corgel says. While all segments of the lodging industry suffered revenue declines during 2001, HRG discovered some consistent characteristics in the deficient hotels. Those unable to cover interest obligations tended to be older, smaller, full-service properties that achieved a relatively low occupancy rate. "While experiencing double-digit declines in profits, 29% of the full-service hotels in our sample were unable to cover their interest payments in 2001 from the hotels' net income," Corgel says. "This compares to just 11.2% of the limited-service hotels." HRG projects a moderate increase in the number of deficient hotels this year, primarily because of the lodging industry's continued slide in performance. "Our economic model forecasts a 1.5% decline in hotel revenues that should result in a 2.8% decline in property-level profits," Corgel says. "Assuming no change in interest expense from 2001 to 2002, the number of hotels unable to cover their interest payment will increase another 8.3%," a number that could be reduced by more refinancing, he says. HRG's model projects a turnaround in 2003 with a 7% increase in hotel revenues. "This will allow for more hotels to pay their interest from the cash generated from operations," Corgel says. HRG estimates that in 2003, just 12.5% of the hotels in its database will be unable to cover their interest payments, the lowest percentage since 1998.