Wednesday, October 22, 2014

Robust construction and CRE conditions

Surely this news is not widely appreciated:


According to the American Institute of Architects (AIA), their September billings index "shows robust conditions ahead for [the] construction industry." The billings index, shown in the chart above, is registering new highs for the current business cycle. Furthermore, "the recently resurgent Institutional sector is leading to broader growth for the entire construction industry.”


According to the CoStar Group, "demand [for commercial property] continues to outstrip supply across major property types, resulting in tighter vacancy rates and continued investor interest in commercial real estate." Furthermore, "price gains in [their] equal-weighted U.S. Composite Index, which is influenced more by smaller non-core deals, accelerated to an annual rate of 13.6% in August 2014." And, "rising occupancies have bolstered net operating income across a number of markets."

The outlook for the construction and commercial real estate (CRE) sectors of the economy hasn't been this strong for many years.

This lends support to my belief that the U.S. economy is doing better than most people realize or expected. That's been the case for this entire business cycle. That's why the equity market has been moving higher even though this has been the weakest recovery in history.

6 comments:

William McKibbin said...

I believe that high-quality commercial real estate is significantly under-valued in today's economy -- now is a great time to acquire commercial real estate at great discounts -- buyers should bid low and demand vast tertiary concessions from sellers.

Benjamin Cole said...

Interest rates may go down from here. That will set up an interesting play in REIT stocks. In institutional real estate markets, we are seeing the effects of a global glut of capital.

Scott Grannis said...

A "global glut of capital" doesn't explain why vacancy rates are down, occupancy rates are up, and net operating income are up in the CRE sector. Those conditions reflect a shortage of commercial real estate, not a glut of capital. CRE is attracting capital because the current and prospective returns to capital are very attractive.

William said...

Something Wrong with this Dip and Ralley

The AAII Sentiment Survey shows that although it briefly hit 56% Bullish a month ago, on this Dip the Bulls didn't drop lower than 38%. The Bears did rise from a low of 24% to 33.7%.
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Week ending 10/15/2014

Bullish---42.7%
up 2.8
Neutral---23.6%
down 5.5
Bearish---33.7%
up 2.7

Long-Term Average:
Bullish:---39.0%
Neutral:---30.5%
Bearish:---30.5%

So compared to previous Dips the past 3 years, the AAII folks didn't become that concerned. They took it pretty much in stride.
------------------------------
Also, Lipper Fund Flows show that investors in equity mutual funds and ETFs didn't withdraw that much money, only about $17 Billion.

Weekly 10/15/2014

Equity Fund Inflows $2.8 Bil;

Taxable Bond Fund Inflows $5 Bil

xETFs - Equity Fund Outflows -$1.5 Bil;
Taxable Bond Fund Inflows $3.3 Bil

Weekly 10/08/2014

Equity Fund Outflows -$6.7 Bil;

Taxable Bond Fund Inflows $12.7 Bil

xETFs - Equity Fund Inflows $330 Mil;
Taxable Bond Fund Inflows $7.9 Bil

Weekly 10/01/2014

Equity Fund Outflows -$10.4 Bil;
Taxable Bond Fund Inflows $1.6 Bil

xETFs - Equity Fund Outflows -$3.8 Bil;
Taxable Bond Fund Inflows $2.7 Bil

Weekly 09/24/2014

Equity Fund Inflows $5.6 Bil;

Taxable Bond Fund Inflows $2.6 Bil

xETFs - Equity Fund Outflows -$938 Mil;
Taxable Bond Fund Inflows $2.7 Bil

Weekly 09/17/2014

Equity Fund Inflows $6.7 Bil;

Taxable Bond Fund Outflows -$2.6 Bil

xETFs - Equity Fund Inflows $646 Mil;
Taxable Bond Fund Inflows $563 Mil
--------------------------------
Bull Markets climb a "Wall of Worry" and these most naive investors are not showing much worry.

This is more like Bear Market action where folks who missed the 5 years Bull Market are desperate to get in. In my view the "Bottom" is not in which is supported by antidotal evidence of 2 or 3 posts here talking about buying equities or stateing that the market made a bottom. Or a friend of mine who says he had assets of $10 million who never added to his small equity position over the past 5 years until last week when he purchased $400,000 of equity mutual funds.

steve said...

william, I hope you're not using this fund flow nonsense to try and time the market. I've been a trader for a LONG time and have never seen anyone successfully time the stock market-which is why I trade bonds!

William McKibbin said...

So, the "equity market has been moving higher even though this has been the weakest recovery in history." That begs the question, which market(s) is causing this to be the "weakest recovery in history"?