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.
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.
ReplyDeleteInterest 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.
ReplyDeleteA "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.
ReplyDeleteSomething Wrong with this Dip and Ralley
ReplyDeleteThe 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.
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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
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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.
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!
ReplyDeleteSo, 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"?
ReplyDeleteIt's encouraging to see the AIA's September billings index indicating strong conditions for the construction industry. The growth led by the resurgent Institutional sector could have a positive ripple effect across other sectors. For anyone looking for House Construction in the Philippines, this trend might mean more opportunities and resources becoming available. It's great to see such robust growth in the industry!
ReplyDeleteNice article. I'm currently looking for House Construction in the Philippines
ReplyDeleteNice article thanks for sharing this. If you're looking for Construction project management highly recommend midroc
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