Friday, July 29, 2016

Second quarter 2016 GDP rose at 1.2 percent in advance estimate

Real gross domestic product increased at an annual rate of 1.2 percent in the second quarter of 2016 according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.8 percent.

The Bureau emphasized that the second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source. The "second" estimate for the second quarter, based on more complete data, will be released on August 26, 2016.


Employment costs rose 0.6 percent in 2Q 2016 and 2.3 percent year-on-year

Compensation costs for civilian workers increased 0.6 percent, seasonally adjusted, for the 3-month period ending in June 2016.  Over the last 12 months, compensation costs for civilian workers increased 2.3 percent.

Consumer sentiment dips slightly in July to 90.0

Consumers were a bit less optimistic in July than one month or one year ago, although consumer confidence remains at a reasonable high level. The recent decline was due to rising concerns about prospects for the economy, that were mainly expressed by upper income households.

Uncertainties surrounding global economic prospects and the presidential election have made consumers more cautious in their expectations for future economic growth as well as employment growth. Strength in personal finances and low interest rates will maintain the growth in real consumption at 2.6% through mid 2017.

Wednesday, July 27, 2016

Federal Reserve keeps interest rates at current levels but acknowledges improving economy

Information received since the Federal Open Market Committee met in June indicates that the labor market strengthened and that economic activity has been expanding at a moderate rate.

Job gains were strong in June following weak growth in May. On balance, payrolls and other labor market indicators point to some increase in labor utilization in recent months. Household spending has been growing strongly but business fixed investment has been soft. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports.

Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent.

Pending home sales inched up 0.2 percent in June; up 1.0 percent year-on-year

Pending home sales were mostly unmoved in June, but did creep slightly higher as supply and affordability constraints prevented a bigger boost in activity from mortgage rates that lingered near all-time lows through most of the month,

The Pending Home Sales Index inched 0.2 percent to 111.0 in June from 110.8 in May and is now 1.0 percent higher than June 2015 (109.9). With last month's minor improvement, the index is now at its second highest reading over the past 12 months, but is noticeably down from this year's peak level in April (115.0).

Tuesday, July 26, 2016

Consumer confidence mostly unchanged in July after June's rise

Consumer confidence held steady in July, after improving in June. Consumers were slightly more positive about current business and labor market conditions, suggesting the economy will continue to expand at a moderate pace. Expectations regarding business and labor market conditions, as well as personal income prospects, declined slightly as consumers remain cautiously optimistic about growth in the near-term.


May Case-Shiller Index up 1.2 percent from April and 5.0 percent year-on-year

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.0% annual gain in May, the same as the prior month. Before seasonal adjustment, the National Index posted a month-over-month gain of 1.2% in May.


June new home sales rise to highest level in nearly 8.5 years

New U.S. single-family home sales rose more than expected in June, reaching their highest level in nearly 8.5 years.  Sales were up 3.5 percent from May and 25.4 percent year-on-year to a seasonally adjusted annual rate of 592,000.  With this increase, new home sales in the second quarter are well above their average for the first three months of the year.

Monday, July 25, 2016

The State of Infill Development

In the year 1900, less than 46 percent of the U.S. population lived in urban areas. Fast-forward to 2016, and that percentage is now over 82 percent, and expected to keep growing as exurbs are added to existing metropolitan boundaries and cities become denser.

In addition, as existing land uses and buildings continue to become obsolete, urban infill will certainly be a crucial part of meeting future demand for not just housing, but also offices, services, entertainment and whatever the future is for ‘brick and mortar’ retail outlets.

To be sure, infill projects enjoy many advantages, including tapping existing infrastructure and transit options, closer proximity to retail stores and services, and even potential incentives provided by local government.  Yet there are also serious challenges for even the most seasoned builder, including increased and unique project costs, longer time frames to receive entitlements, and the need to appeal not just to residents or tenants, but also to the surrounding neighbors.

More recently, according to Tom Doyle, co-founder and principal of WDLand in Irvine, California, which has been at the forefront of infill sites since being launched in 1996, another recent challenge is the disconnect on perceived land values between buyer and seller.

As Doyle explains, there are three reasons for this over the past two years:  Higher direct site improvement costs, steeper development fees and a more restrictive and time-consuming regulatory process, especially for greenfield sites.  The result has been lower residual land values than what sellers would have hoped. Moreover, he adds that because those providing equity and debt all prefer core areas, it’s become an extremely competitive market for builders in search of decent volume.

Infill development also presents a different challenge for builders accustomed to creating traditional subdivisions.  Justin Esayian, a broker with The Hoffman Company of Irvine, cautions that simply selling a project in an infill location doesn’t guarantee success.  “Builders have had mixed results in infill markets, and that has given them pause,” he explains.  “Their unit count is generally lower and the projects are more complicated to construct or not familiar to them, and costs can escalate out of control.”

That’s also why due diligence and market research is so important for infill sites, especially at the earliest stages. According to Doyle, it’s crucial for builders to do their community outreach and with the cities, noting that some are simply not being diligent enough with the cities and other jurisdictions.  Esayian agrees, adding that when builders try to entitle with only residential volume in mind, they often get their hand slapped, and that even adding in some token retail fronting the street can help them obtain approvals.

So what’s popular today for infill communities?  Doyle finds that small-lot, single-family detached product can often yield the highest residual values, although a lot depends on the allowable densities per city code.  Even denser attached homes above 20 to the acre are still attractive, although he adds that podium-style product is difficult unless it’s along the coast or higher-priced areas such as West Los Angeles.

From his experience, Esayian suggests that builders take a second look at three-story detached homes selectively, because they often “live far better than two-story designs; while you have that extra staircase, you’ve got much more room to move around, and the livability increases.”  Even so, even the best three-story plans perform well in certain urban submarkets, but less so in more suburban ones.  In addition, he’s seeing a ‘proliferation of roof decks’ commanding premiums, but don’t put them everywhere, as they’re often more appropriate for more contemporary architecture.

As for non-residential infill uses, Doyle points to The Anaheim Packing House, where developer Lab Holdings repurposed a former 42,000-square-foot Sunkist facility dating from 1919 into a wildly popular collection of more than 20 small restaurants under a single roof.

Anaheim Packing House
Started by former fashion industry executive Shaheen Sadeghi in 1991, Lab Holdings become famous for its ‘Anti-Mall’ redevelopment of an abandoned factory two years later, and has become a favored partner with Orange County cities in need of creative solutions.

Meanwhile, over in nearby Costa Mesa, Esayian was instrumental in finding a joint venture partner for the redevelopment of the former L.A. Times printing press site in Costa Mesa. To be known as The Press, about 300,000 square feet of creative office space will be repurposed and developed on a roomy 25-acre site along with amenities like volleyball courts, grills and outdoor seating now popular even with law firms as well as advertising agencies.

The Press

Friday, July 22, 2016

Philadelphia Fed's Business Outlook Survey falls slightly in July

Manufacturing activity in the region fell slightly in July, according to firms responding to this month’s Manufacturing Business Outlook Survey. Although the indicator for current general activity turned negative, indicators for new orders and shipments were positive. The survey’s index of future activity improved slightly, and firms expect growth in new orders and shipments over the next six months.