Nationally, residential real estate prices fell 3.9 percent in the three months ended in September compared with the same period last year, according to the SP/Case-Shiller Home Price Indices. Compared with a year ago, prices fell in 18 of the 20 metropolitan areas tracked by the index, including the San Francisco area, which was down 5.9 percent in the quarter compared with 2010.

“There is no significant momentum, no signs of the housing market contributing to the economy anytime soon,” said Maureen Maitland, vice president of SP Indices, which produces Case-Shiller. “The fact that so many markets were negative does cause us to pay attention. We are on very shaky ground.”

While some seasonal weakness is to be expected after the prime spring selling season, “weakness and negativity do not have to be synonymous,” she said.

In other words, while flat prices might not stir concern, the continued price declines do.

The San Francisco metropolitan area – which Case-Shiller defines as the counties of Alameda, Contra Costa, Marin, San Francisco and San Mateo – is actually among the better-performing regions, despite falling more than the national average.

“San Francisco (metro) has recovered 13 percent from its low in 2009,” Maitland said. “Since then, its prices have been largely increasing, although they have recently fallen down a bit on a year-over-year basis. But two years ago, when there was some recovery, San Francisco was one of the markets that was doing better than others.”

While the nation has undergone a “double dip” in which prices fell, recovered and then fell further, San Francisco has not, she said.

Case-Shiller tracks sales of the same single-family houses over time. It compares changes with a base value of 100, which represents values as of January 2000.

The San Francisco index is now 133.22, meaning that prices here are 33.22 percent above their year 2000 level. The region’s index peaked at 218.37 in May 2006 and hit a low of 117.74 in March 2009.

“Housing is struggling to get up off the mat everywhere,” said Jim Diffley, chief regional economist for IHS Global Insight. “The Bay Area in some ways has been more fortunate than its Sun Belt neighbors. Its economy is doing relatively better.”

IHS predicts that the California market is near bottom and that prices nationally may drop another 7 percent before turning around in mid-2012. “We may have a little further to fall in other parts of the country before we finally get some growth in 2012,” Diffley said.

Patrick Newport, U.S. economist for IHS, said the continued weakness in sales of existing homes bodes poorly for recovery in construction of new homes, typically a major source of job creation. The country is on track to build 600,000 new homes this year, compared with a normal market of 1.4 million new homes.

“This year is probably going to be the worst we’ve ever had for new-home sales and new-home starts,” he said. “Normally, in a recovery, housing is a key sector that gets the economy back on track. Building more homes creates more jobs and has a positive feedback loop.”

The only two regions where prices increased year-over-year were Detroit, where they had tumbled so drastically that they may have hit bottom, and Washington, D.C., where federal jobs buoy the local economy, Maitland said.

Prices nationally rose 0.1 percent in the third quarter compared with the second quarter, which means they were essentially flat.

E-mail Carolyn Said at csaid@sfchronicle.com.

This article appeared on page D – 1 of the San Francisco Chronicle

Article source: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/11/30/BUOG1M5MCG.DTL&type=business

San Francisco Bay Area Home Sales Below Average

Justin Sullivan/Getty Images

Real estate agent Paul Barbagelata, left, talks with a client during an open house in San Francisco.

Real estate agent Paul Barbagelata, left, talks with a client during an open house in San Francisco. Photographer: Justin Sullivan/Getty Images

Home sales in the San Francisco Bay
Area were 22 percent below average last month as buyers waited
for better mortgage availability, DataQuick said today.

A total of 6,749 houses and condominiums sold in the nine-
county region, below the average of 8,644 property deals for
September since 1988, the San Diego-based data seller said in a
statement. Last month’s total was down 10 percent from August
and up 6.6 percent from a year earlier.

“Demand continues to accumulate,” DataQuick President
John Walsh said in the statement. “Empty-nesters want something
smaller, growing families want something bigger. People still
die, they get married, retire — all of this generates demand.
And only a fraction of that demand is being met in today’s
market.”

The number of transactions financed with adjustable-rate
loans, an indicator of mortgage availability, fell to 13 percent
in September from 16 percent in August, according to DataQuick.
Such loans were used in 45 percent of Bay Area sales over the
past decade. Jumbo mortgages, or those higher than $417,000,
were used in almost a third of all deals, little changed from
August and about half 2007’s tally.

The median home price in the Bay Area fell to $365,000,
down 1.4 percent from August and 7.6 percent from a year
earlier, DataQuick said. All nine counties had price declines
from a year earlier, led by a 13 percent decrease to $252,000 in
Contra Costa. Santa Clara fell 6 percent to $470,000 and San
Francisco fell 1 percent to $613,750.

To contact the reporter on this story:
Dan Levy in San Francisco at
dlevy13@bloomberg.net

To contact the editor responsible for this story:
Kara Wetzel at
kwetzel@bloomberg.net

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Article source: http://www.bloomberg.com/news/2011-10-14/san-francisco-bay-area-home-sales-below-average-as-buyers-wait.html

TWELFTH DISTRICT-SAN FRANCISCO

Economic activity in the Twelfth District continued to expand
modestly during the reporting period of mid-July through the end
of August. Upward price pressures were mixed but appeared to
ease overall, and upward pressures on wages were subdued. Demand
for retail items edged up on balance, as did demand for business
and consumer services. Manufacturing activity in the District
grew a bit further. Demand remained robust for agricultural
producers but fell slightly for providers of energy resources.
Activity in District housing markets stayed sluggish, and demand
for commercial real estate was largely unchanged. District
banking contacts indicated that overall loan demand was stable
or inched down.

Wages and Prices

Upward price pressures were very limited on net during the
reporting period. Further modest price declines were noted for
energy inputs and some raw materials. Stiff competition among
domestic firms, combined with weak final demand, resulted in
largely stable prices for most categories of final goods and
services. The primary reported exceptions were clothing and
medical care, for which recent cost increases were passed
through to final prices.

Upward wage pressures were largely nonexistent, as compensation
gains were held down by high levels of unemployment and limited
demand for new hires. As a result of uncertain product demand,
businesses in most sectors expect to remain highly cautious in
regard to hiring for the foreseeable future, suggesting that
compensation pressures are likely to remain subdued. However,
contacts continued to report significant upward wage pressures
for workers with advanced skills in technology fields.

Retail Trade and Services

Retail sales were mixed but rose a bit overall. For general
merchandise such as apparel and smaller household items,
contacts reported modest improvements in sales, with stronger
performance for traditional department stores than for discount
chains. By contrast, retailers of major appliances and furniture
reported weaker demand resulting from a renewed sense of caution
on the part of consumers. Grocery sales were largely flat. Sales
of new automobiles improved somewhat, despite ongoing shortages
of parts and assembled vehicles for some brands arising from the
natural disaster in Japan earlier this year. The demand for used
vehicles continued to firm, with contacts noting rising sales
and additional upward pressure on prices and trade-in values.

Demand for business and consumer services continued to
strengthen overall. Sales expanded further for providers of
technology services, as consumer demand for software, e-books,
and mobile applications continued to grow. Providers of
professional services such as law and accounting reported that
demand was little changed from the prior period. Similarly,
demand for transportation services was characterized as largely
flat. For energy utilities, demand waned a bit during the
beginning of the reporting period but improved later. Providers
of health-care services reported that demand strengthened
somewhat. Conditions in the District’s travel and tourism
industry improved further, with demand growth reported for the
business and tourism segments alike.

Manufacturing

District manufacturing activity was mixed but appeared to grow
slightly during the reporting period of mid-July through the end
of August. Although manufacturers of semiconductors and other
technology products reported slower growth for new orders and
sales, capacity utilization rates remained high and inventories
were near desired levels given the pace of sales. For makers of
commercial aircraft, significant increases in new orders for
narrow-body aircraft combined with an existing order backlog to
keep production rates near capacity. A metal fabricator noted
that sales were “steady but slow” and raw materials were readily
available. Petroleum refiners reported slightly weaker demand
and capacity utilization rates that were largely stable, causing
product inventories to rise somewhat. Demand held at very low
levels for manufacturers of wood products.

Agriculture and Resource-related Industries

Demand grew further for agricultural products and metals but was
down slightly for natural resources used for energy production.
Orders and sales continued to expand for a wide variety of crop
and livestock products, especially cattle and cotton. Contacts
noted that agricultural input costs have stabilized following
significant increases in the spring. Rising sales prices for
assorted metals spurred further increases in mining activity in
parts of the District. Overall demand for crude oil weakened a
bit, primarily reflecting weaker domestic demand, but extraction
activity for natural gas was largely unchanged.

Real Estate and Construction

Demand for housing and for commercial real estate was little
changed from existing low levels. Although the reports pointed
to scattered signs of improvement in the entry-level and high-
end segments of the District’s housing markets, the pace of home
sales and construction remained depressed. By contrast, demand
for rental space continued to grow, enabling landlords to
increase rents and scale back tenant concessions in some areas.
Demand for commercial real estate remained weak overall, and
vacancy rates for office and industrial space stayed elevated
throughout the District. Conditions were mixed across geographic
markets, with deterioration in leasing activity for some areas
contrasting with ongoing improvements in areas that have
benefited from growth in the technology sector, such as the San
Francisco Bay Area and Seattle.

Financial Institutions

Reports from District banking contacts indicated that loan
demand was largely stable to marginally down compared with the
prior reporting period. Citing heightened levels of uncertainty,
some businesses showed a reduced desire to engage in
expansionary capital spending, reportedly causing demand for
commercial and industrial loans to weaken slightly. Contacts in
most sectors reported downward revisions to their expectations
for growth in their industry for the remainder of the year,
suggesting that capital spending will remain muted in coming
months. On the consumer side, loan demand was largely unchanged.
While lending standards remained relatively restrictive for
business and consumer loans, the reports pointed to ongoing
improvements in overall credit quality and some loosening of
credit standards for selected borrowers.

Article source: http://www.bloomberg.com/news/2011-09-07/u-s-federal-reserve-beige-book-san-francisco-district-text-.html

One real estate sector is still booming; is it about to bust?

^{A version of this article originally appeared on our US site, Fool.com.}

Real estate. They’re not making any more of it. Demand is only increasing. Those arguments helped fuel an epic real estate boom and bust over the past decade — except when it comes to Internet data centres, which have continued to boom on explosive growth in cloud computing. They haven’t been able make those fast enough. But that may be changing, too.

A warning shot over the bow

On its recent earnings call, Akamai (NASDAQ: AKAM.US) was asked about co-location price trends in Internet data centres. Here’s what the company had to say:

… it’s like a real estate market. There are some places where our prices are holding. There are other places where there are very aggressive price declines, and we try to take advantage of that gain in terms of how we deploy our network assets. … The other lever we have on co-location costs, of course, is to make our servers more efficient and get effectively more throughput for our footprint in the co-lo facility.

Based on Akamai’s comments, co-location supply is still constrained in some markets. In others, it’s starting to meet demand. That brings to mind a classic real estate maxim: location, location, location.

Economics 101 teaches us that supply and demand affect pricing. When supply is constrained, prices rise. Internet data centres have been benefiting from that situation. But high prices attract more supply, and eventually supply will catch up with demand. When that happens, prices — and profits — are destined to fall. And that’s starting to happen. What’s more, increasingly efficient IT equipment can offset much of the growing demand for more processing, bandwidth, and storage. What’s good for Akamai can be the opposite for co-location and hosting companies.

Growing up

One factor affecting demand is companies that are shifting from the consumer equivalent of renting to buying their own home. Much like a young adult moving out of Mom and Dad’s place for the first time, companies moving onto the cloud often rent a temporary meets-my-needs-for-now space with no intention of a long-term commitment. As the companies mature, gain a better understanding of their needs, and gather cloud assets, they often began building their own data centres.

Generally, it’s the largest, most attractive tenants that make that shift. Recent examples include Apple (NASDAQ: AAPL.US) and Facebook. They’re following the example of Google (NASDAQ: GOOG.US), which has built its own data centres for some time. As the horde of young companies pursuing cloud strategies gain scale and mature, many more are likely to follow in Google’s, Apple’s and Facebook’s footsteps.

Other tenants are likely to go bust. From a co-location landlord’s perspective, that’s the corporate equivalent of having a tenant lose his or her job and move back in with Mom and Dad. Too much of that, and rental rates take a hit.

Build it and they will come?

Many data-centre developers are doing the equivalent of building on speculation that there will be a tenant. To wit, the CEO of Equinix, a large data-centre operator, has acknowledged that overbuilding is a “main concern.” 

Equinix invests heavily in the IT infrastructure used to serve its clients. Given the rapid depreciation on IT equipment, pricing pressure could make Equinix’s capital expenditures less profitable than anticipated. Pricing pressure is potentially a huge risk for the company.

Say when

When might co-location and hosting supply catch up with demand? Tier1 Research estimates that data-centre utilization in key markets is currently running between 81% (Northern Virginia) and 88% (Silicon Valley). That’s less than I’d expect in an exceptionally tight market.

And it’s a fast-moving market. In the San Francisco Bay area, which includes the Silicon Valley, rental rates for large tenants have reportedly declined 20% over the past 18 months thanks to new supply that’s coming online. A fresh surge of supply is expected in the area before year’s end. In the coming two quarters, data-centre landlord CoreSite Realty predicts that the new supply will outpace demand by as much as 50%.

A recipe for getting burned

With the sector viewed as a cloud play, valuations are sky-high. P/E ratios typically exceed EPS growth rates — that is, when EPS is positive. Over the last four quarters, CoreSite’s EPS was -$0.31 while Internap’s was -$0.10.

The trouble is, supply will catch up with demand sooner or later… and it looks like it might be sooner. When that happens, prices, profits, and P/E ratios are likely to plummet. A UBS analyst stated last December that data-centre developers were grappling with slowing growth, rising competition, and pricing pressure that made their valuations “unsustainably high.”

Foolish takeaway 

When prices sneeze, revenues catch a cold and profits catch pneumonia. Akamai’s comment about pricing trends in co-location centres signals that it may be time for investors to break out the handkerchiefs.

More on US shares:

• Where Should You Invest? This Indicator Will Tell You
• This Oil Stock Has Incredible Opportunities
• A Tale Of 2 Silicon Valleys

The Motley Fool owns shares in Google.

Article source: http://www.fool.co.uk/news/investing/2011/08/01/the-coming-digital-real-estate-bust.aspx

Nothing like getting to work on a Monday morning and finding no fewer than four dismal reports on the housing market in my “Inbox.”

It’s not like anyone thought housing recovered over the weekend (that was pretty clear from the precious few “Open House” signs in my neighborhood at least), but the outlook is deteriorating, and we’re just a day away from getting what is expected to be a weak report on existing home sales for May.

Let’s start with home prices from Fannie Mae’s Economics and Mortgage market Analysis Group, which predicts additional home price declines through the third quarter before flattening out at the end of 2011. “Ultimately, the labor market holds the key to a housing recovery, but job growth is needed in order to activate housing demand,” said Fannie Mae Chief Economist Doug Duncan. “Hiring delays will continue to push out timing for the housing rebound.”

Okay, not exactly a shock, but never a good thing to hear analysts say, “growth is stalling.”

Now to a new point about investors, from the May Housing Market report from Campbell/Inside Mortgage Finance, which tracks several indices:

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Home prices fell 6.7 percent in February year over year, according to a new report from CoreLogic. That numbers includes distressed sales, that is, sales of foreclosed properties or short sales, where the bank agrees to let the homeowner sell for less than the value of the mortgage. If you take those sales out, however, home prices were basically flat.

“When you remove distressed properties from the equation, we’re seeing a significantly reduced pace of depreciation and greater stability in many markets,” notes CoreLogic’s [ CLGX 18.48  -0.33 (-1.75%) ] chief economist Mark Flemming. “Price declines are increasingly isolated to the distressed segment of the market, mostly in the form of REO sales, as the stock of foreclosures is slowly cleared.”

Distressed sales, though, still make up more than a third of all home sales, according to the National Association of Realtors, and that number is likely to rise at least in the near future. The banks have slowed the process of foreclosure, and that has reduced the number of bank owned properties hitting the market lately, but it’s a whole different story with short sales.

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