I woke up this mornin' with the sundown shinin' in
I found my mind in a brown paper bag, but then...
I tripped on a cloud and fell eight miles high
I tore my mind on a jagged sky
I just dropped in to see what condition my condition was in
Nouriel Roubini's newsletter [different link with more and different information] reminds us that there may be silver linings but the cloud is still damn big. For some reason the dark lyrics of the Kenny Rogers' classic played in the background of my mind, along with "It ain't over til it's over..."
Today we take a look at the health of residential and commercial property markets around the world. Slowing economic activity and a credit crunch contributed to a decline in housing activity, prices and construction in most major economies. Eastern Europe and the Baltics, as well as the U.S. and UK, have endured some of the sharpest declines. In many countries, not only in the U.S., the bottom of the property markets still seems far off, with sales, prices and starts forecast to continue declining, albeit at a slower pace, through much of 2009.
In fact, many European economies (and Canada) tend to have housing cycles that lag behind the U.S. by about 2-3 years, suggesting that their declines could also persist beyond a U.S. housing stabilization. Sounder lending standards and lower incentives to invest in residential property in some countries may allow them to avoid the depths of the U.S. property correction but others may suffer more severely. The liquidity resulting from quantitative easing has contributed to a slower deterioration of the housing markets. Yet with high inventories in many markets, it may take some time to absorb the excess. This will continue to erode the value of asset-backed securities and banks' balance sheets and defer the revival of construction activity, a major driver of growth.
The decline in retail trade and contraction of the financial sector has worsened the commercial property outlook. Commercial vacancy rates are on the rise in almost all major centers in Europe and North America and net effective rates have declined by 25-30% in major cities in Asia, suggesting that new investment is unlikely as these cities try to absorb overcapacity in retail and hotel trade. Meanwhile, still tight corporate debt markets pose obstacles for corporate finance. Despite the weak fundamentals, REITs and other property investments have benefited from the renewed risk appetite and have been climbing off late. These property investments might well be vulnerable to any reversal of risk appetite.
Despite the ongoing global meltdown I still hear loud voices preaching with stiff-backed righteous indignation about the beauties of the "free market" and the horrible effects of "government interference." Many still advocate pulling the TARP rug from under the whole house of cards and letting the chips fall where they may. Curiously, the same crowd that embraces fear as the glue that holds together a political, military and philosophical value system reveals no hint of fear when discussing the need for improved regulatory oversight. It reminds me of the good old boys here in Georgia who complain about motorcycle helmets and seat belts. "Hell, if I want to take the chance at becoming a vegetable after an accident it ain't none of anyone else's business."
Yeah, right. So for those who think no one else is affected, Roubini goes on....
The housing sector is one the most important factors affecting the economic slump in the UK, which is similar in many ways to the difficulties facing the U.S. economy. The latest data on the UK housing sector continues to be mixed but some analysts are tentative to call the bottom in Q2 2009...
The European housing cycle lags the U.S. cycle by about 2 years but the extent of house price increases, as well as the extent of over-construction, exceeds the U.S. experience in many countries. Starting from the mid-1990s, house prices in the UK, Spain, Ireland, Scandinavia and France exceeded the price increase in the U.S. whereas construction as a percent of GDP expanded to unsustainable levels, especially in Spain and Ireland. This severe construction overhang in the latter countries will take several years to unwind thus retarding a return to balanced growth as suggested by the strong housing-consumption correlation in these countries...
The Australian housing market downturn is likely to be milder than in the U.S., UK and EU in 2009. Australia's house price correction had a head start going back to 2003. Furthermore, housing demand from migrants to the commodities-rich west and the chronic housing shortage in eastern Australia will keep prices from stabilizing back at pre-boom levels unless Australia fails to avoid a deep recession. Indeed, building approvals and housing loans to owner-occupiers began to recover since October 2008 after the government doubled grants for first-time purchases of homes until December 2009. Mortgage interest rates fell to their lowest level in four decades after the Reserve Bank of Australia cut the overnight cash rate 425bp within a year to 3% in April 2009, the lowest since 1960. Tax cuts, government handouts and lower petrol prices will also raise the affordability of housing....
New Zealand's housing market is in worse shape than Australia's but is also likely to avoid as deep a correction as in the U.S. and Europe. The Reserve Bank of New Zealand has cut 575bp since July 2008 to 2.5% in April 2009 but longer-term, fixed mortgage rates have recently begun to rise again due to expectations of a quick recovery and higher interest rates. Fiscal policy has been laissez-faire towards the recession, opting merely for tax cuts as the government would rather not stand in the way of the economy's structural adjustment...
Central and Eastern Europe
Like other parts of the world, property prices in most of Central and Eastern Europe (CEE) have taken a beating and further price falls are expected in 2009 and 2010. In addition to tight credit conditions and economic contractions across the region, collapsing demand from Western European buyers is also having a negative impact on prices....
Despite government investment, Russian construction activity, which previously boosted growth, has fallen in 2009, given the contraction of credit and reduced affordability of housing following the drop in real wages and increase in real interest rates. Banks curbed lending to developers who had begun delaying projects in mid-2008 as higher project costs limited profits...
Middle-East and Africa
Slowing growth, tighter liquidity and some slowing of supply shortages has reversed the Middle East property boom of recent years, raising the risk of a bust in countries most reliant on external credit. Almost all markets are witnessing price correction, lower sales and slowdowns - if not cancellations - in real estate and construction projects as speculative buying is falling, in the face of financing difficulties....
Asia has witnessed sharp real estate correction led by the Asian Tigers, plus China, India and Vietnam. All these markets saw declining home and office prices and rentals, lower sales and rising vacancies. Prices are approaching fundamental values and slowing construction activity might somewhat close the estimated excess supply. But further price and rental correction are imminent. This because household and corporate demand will remain subdued in 2009 despite policy measures such as interest rate cuts and fiscal incentives as well as attractive discounts offered by realtors. Slowing or contracting consumer spending and rising job losses in most economies are hitting residential and retail markets....
I left Canada and Brazil off the summary because they were the only two economies whose wounds seemed more superficial than critical. Dare I suggest that better central control and oversight may have had something to do with their being spared the blood-letting that seems still to be affecting the rest of the world economies? When I allow myself to wonder what might be happening if the GOP were in control it blows my mind.
Someone painted "April Fool" in big black letters on a "Dead End" sign
I had my foot on the gas as I left the road and blew out my mind
Eight miles outta Memphis and I got no spare
Eight miles straight up downtown somewhere
I just dropped in to see what condition my condition was in
I said I just dropped in to see what condition my condition was in
Yeah yeah oh-yeah