Homes vs. Offices

Thursday, July 05, 2007 | 08:36 AM

I mentioned the duality of this era the other day, and it carries right into today's discussion --

Housi_20070704On the one hand, Pending Home Sales Index dropped 3.5% in May to a 6-year low:

"Pending sales of existing homes dropped to their lowest level in almost six years, a real estate trade group said Tuesday, demonstrating the persistence of the housing slump.

The 3.5 percent decline in May, compared with the previous month, follows a drop of 3.4 percent in April and a 4.5 percent dip in March. It leaves the National Association of Realtors' index at its lowest point since September 2001. . .

The association's index of pending home sales fell to 97.7 in May, from a downwardly revised figure of 101.2 in April. The May figure is 13.3 percent lower than the May 2006 reading of 112.7. The index stood at 89.8 in September 2001. An index reading of 100 is equal to the average level of contract activity in 2001."

It is not unrelated that inventory levels of one family homes for sale continues to rise :

"In another sign of weakness for the housing market, the National Association of Realtors reported this week that its index of pending home sales in May declined 3.5% from a month earlier to stand at 97.7. The index, which is down 13% from a year earlier, equates the 2001 level of activity to 100. The group considers a sale pending when a contract has been signed but the transaction hasn't been completed."

So much for Hank Paulson's bottom.

Rent1e_20070704 Yet on the opposite side of town, Office rents are "Soaring" and space remains tight:

"Office rents are skyrocketing across the nation, driving up costs for businesses large and small, thanks to a dearth of space in some major markets and a new breed of deep-pocketed landlords who can afford to hold out for premium tenants.

Nationwide, effective rents on office properties -- the amount tenants pay after concessions -- jumped an average of 3.1% during this year's second quarter, up from gains of 2.8% in the first quarter and 2.1% in the year-earlier period, according to a report scheduled for release today by real-estate research firm Reis Inc.

That was the sharpest quarterly increase since the third quarter of 2000, before the combined effects of the technology-stock bust and the Sept. 11, 2001, terrorist attacks caused office vacancies to rise and rental rates to fall."

I can tell you from personal experience in Manhattan that mid-twon space is hard to come by (downtown is no problem -- cheaper, more choices, more negotiable). 

The solution to this problem is obvious: We need to get these two groups together! All the flippers and speculators need to come together to form suburban office parks of unsold homes, and offer them to businesses to alleviate the office space crunch . . .

Problem solved!


Number of Unsold Homes Increases   
WSJ, July 5, 2007; Page B8

Pending Home Sales Near a 6-Year Low
U.S. Pending Home Sales Index Drops 3.5 Percent in May to a Near 6-Year Low
Christopher S. Rugaber
AP, Tuesday July 3, 11:39 am ET

Soaring Rents Pinch Businesses Across the U.S.
Second-Quarter Jump Is Sharpest Since 2000;
WSJ, July 5, 2007; Page A1

Thursday, July 05, 2007 | 08:36 AM | Permalink | Comments (13) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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The other side of the pond seems to have a completely different take on how to handle asset bubbles:

"July 5 (Bloomberg) -- Bank of England policy makers raised interest rates for the fifth time since August and said they're concerned inflation will stay above target, adding to investor speculation that at least one more increase is likely this year."

I would think this would also pressure U.S. bond prices, as well.

Posted by: Winston Munn | Jul 5, 2007 9:29:42 AM

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